John Lewis Analysis - Assignment Example

?John Lewis Analysis Company overview John Lewis Partnership Plc is one of the largest retail chains in the UK and he third largest globally. The partnership is operated under the John Lewis or the Waitrose brand names; John Lewis trading is made of 23 stores and 112 Waitrose supermarket outlets including a few manufacturing departments that produce furnishing fabrics (Williamson et al 2008, p.190). Generally, in the partnership, Waitrose Supermarket chains contribute about half of the partnership’s total revenue and about one third of the after tax profits. Over the last 50 years, John Lewis partnership has been operating under the motto ‘Never Knowingly Undersold,’ a philosophy that has led to provision of high quality goods at relatively low prices. Most Waitrose stores are located in the upmarket areas of London, enjoying relatively prime areas compared to its competitors; a 1995 survey by Which? Magazine rated Waitrose as the most expensive supermarket chain based on its prime location. The price differences were influenced by its locations, with most of the chains being located at the Home Counties, Southern England, London and South-East England, which are among areas largely populated by middle to high-class customers (Williamson et al 2008, p.190). The business operates with the mission of making all its employees happy and a vision of dealing honestly with a customer to secure their trust in provision of high value services and a wide choice of products. John Lewis partnership largely deals in a wide range of products in addition to food products. The partnership has a good market command in dealing with a variety of merchandise that include household products, electrical gadgets , furnishing products, home based appliances and devices, a wide range of fruits, beef and chicken products among other daily products, fashion ornaments and raiment, mushrooms among other numerous products (Bloomberg Business Week, 2011). Essentially, John Lewis partnership has something for everyone and strategizes to suit the needs of every customer, a strategy that has worked wonderfully in attracting and retaining its customers and as a critical strategy to the partnership. In addition to the above merchandise, John Lewis Partnership offers a relatively wide range of auxiliary services in insurance packages that range from pet insurance, wedding based insurance packages, travel insurance and life insurance covers to its employees (Rendall & Seth 2011, p.91). According to Finch, John Lewis partnership to achieve this end has elaborate plans to open more stores within and outside the UK market. This would be achieved by taking products as close to the customer as possible, and employing creative approaches that would have the partnership identify specific consumer needs and target them as precisely as possible. For instance, one of the strategies undertaken by John Lewis was to have consumers buy term insurance products directly over the internet and phone, with Greenbee, a direct services company being unveiled to undertake this innovation. This is aimed at ensuring customers have the same level of trust and confidence in their level of services as they have in consumer goods and foodstuffs (Money Marketing 2006, p.3). Waitrose, one of the major businesses under John Lewis was not affected by the recent recessions that greatly affected most businesses, but realised more than 11% growth at the same period (Finch, 2011). The impressive record as Finch observed beats John Lewis up market rivals such as Marks and Spencer, with high expectations of growth being projected in the future as the partnership lays its expansion plans to other markets. According to John Lewis Plc (2012, pp.4-5) the Partnership’s financial statement shows that its profitability reduced significantly in 2012 compared to 2011. In 2012, the company had an impressive performance with the partnership’s turnover increasing by 6.45% to ?8.73 billion, though the group’s operating profits fell by 8.9% to ?391.0 million. This led to a decrease in profits before tax and bonuses by 3.9% to ?353.3million. Out of this Waitrose turnover was up by 8.6% to ?5.5 billion while its operating profits were down by 5.2% to ?260.6 million. John Lewis on the other hand had its turnover increasing by 3% to ?3.33 billion, while its operating profit took a ditch by 20.4% to stand at ?157.9m. From these figures, Waitrose supermarket chains are a significant part of the partnership, having relatively higher profitability and turnover than John Lewis. Consequently, due to the reduced operating profits in 2012, the net profit was ?301 million, down from ?322 million in 2011. All the same, the company had increased the number of employees at year end from 76,500 in 2011 to 80,900 in 2012, which indicates a growing trend in the partnership having increased its employee base by more than 4000 employees in one year Market Analysis PEST Analysis Political factors Political factors greatly affect operations of businesses. Both political and legal forces will impact differently on the daily operations of a firm (Fortenberry 2010, p.180). Waitrose in dealing with a large portfolio of agricultural products has considerable political backing. According to a study by the House of Commons (2006, p.434) The UK government has over the time undertaken steps to increase production by supporting farmers. This is achieved through extensive research and development projects that are aimed at finding solutions to perennial problems in the agricultural sector. Waitrose is the leading chain store that buys these food products from farmers to stock in its supermarket chains. Such government efforts to increase production would impact positively on the company’s efforts, as there would be more produce from farmers for the chains. To complement the government’s efforts, Waitrose invested heavily in a pig research project that has since helped farmers in using cheaper technologies to rear pigs, which has increased production and lowered the costs involved (House of Commons 2006, p.180). Such political goodwill has a good bearing on Waitrose’s business objectives Economic Analysis The economic strategies put in place by a government in any country has a direct on the success or failure of a firm by creating an environment that may hinder or support growth (Fortenberry 2010, p.181). Waitrose has its main market in the London upmarket areas and other areas with high disposable incomes. Davey (2011) noted that John Lewis has the largest market segment in London, and areas with large populations of customers with high disposable incomes. In addition, the government offers subsidies to farmers, which lowers the cost of farm products all, which have an impact on the partnership’s operations. Davey (2011) also noted that John Lewis remained unscathed by the recession forces at a time where the government was heavily considering using cutbacks and emerged profitable amidst the crisis. Social factors The social climate of a society has a large effect to every organization and its operations. Social factors that affect the market include the demographic factors, values and beliefs in a society and other factors that play at the society level (Fortenberry 2010, p.181). Laura & Bourlakis (2009) noted the role of Corporate Social Responsibility in the current society where people are more conscious about products and the operations of a company; well performing companies have shown trends of being socially ethical to stakeholders, which implies that Waitrose has an advantage in their CSR policies compared to most of their competitors. The fact that Waitrose has the best SCR practices indicates that social factors are favorable to Waitrose operations. Technology Waitrose has a wide range of high-end technological gadgets for domestic use or commercial use, phones and broadband packages, which the chains sell to their customers in addition to employing such high-end technological devices in all their operations (Bloomberg Business, 2011). Davey (2011) explained that a major strength in John Lewis was in venturing in online shops. Moreover, the company in its research and development programs to help pig farmers in UK employed technological methods that proved to be of great success to farmers (House of Commons 2006, p.434). Technology was is critical in helping John Lewis to reduce costs, obtain quality supplies and offer quality products, as one of the major strengths in the company. Moreover, through technology in the chains, the company has managed to facilitate communication with its clients and suppliers as well as maintaining the current trend in the market where technology advancement offers a company a competitive advantage over its rivals. Competitive environment: Porter’s analysis The Porter’s five elements of a competitive market are possibility of entry by rivals, the competition among established firms, the buyers’ power, power of suppliers to influence decisions in the company and availability of similar products that may act as substitutes (Hill & Jones 2008, p.45). Risk of entry by rivals A report by Office of Fair Trading (2006, p.1) noted an increasing threat of entry by new competitors in the agricultural niche across UK. However, as the report observed, Waitrose had a huge advantage in land holding to claim a good competitive edge in the UK market. Due to their expertise and exclusive rights in contracts signed by farmers across UK, new entrants would be discouraged to compete with the chains, significantly reducing the threat of new entries in the market. Moreover, the company has vested interests in a wider range of sectors where most customers use the chains as a one stop shop in obtaining everything from grocery to electronics. With such an advantage, John Lewis has outpaced new entrants who may not have the muscle to compete with the company in all its areas of specialization. Competition among operating firms Waitrose supermarkets face stiff competition from international and local supermarkets in the market; Tesco is the leading competitor, with its online shops designed on global benchmark standards. By 2004, Tesco had over 85,000 online orders weekly, with over 1 million customers in its online shops across UK (Dennis, Fenech & Merilees 2004, p.39). Moreover, Tesco has over 53% market claim in the UK and is the best fast mover chain currently with access to about 95% of the total UK residents. Sainsbury is another major competitor with over 71% access to UK customers, which makes it command a sizeable local market. However, Waitrose has an added advantage to counter such competition in having differentiated products and services, and focusing more on specific needs of the market, in addition to the advantage of controlling the prestigious market around London. Moreover, John Lewis has a greater advantage in that the company has a strategy of working directly with farmers in developing farm products and in researching on the best methods to farm alongside the UK government. This is the greatest advantage that the chain has over Tesco and the other major competitors. Bargaining power of buyers Waitrose customers have a high purchasing power and considerably affect the way the stores do business. Jones & Hill (2008, p.53) observed that in cases where a company has several small units with a few but significant buyers, there is a probability for the company to claim a larger market segment. John Lewis has greatly capitalized on this strategy to win the market. As Dennis, Fenech & Merilees (2004, p.39) noted, cutthroat competition in the market empowers buyers, which results to lower prices for customers as a result of stiff competition. Considering that buyers have a high barging power, they demand for better quality from such retailers. All the same, John Lewis through its chains has mangled to maintain quality and value to customers through reduced prices, which makes the company to be in touch with the demands of customers. John Lewis Porter’s generic strategies sector forces Cost leadership Differentiation Focus Barriers in entering the market The company will offer lower prices than competitors. Which is a value preposition that increases its customer base More customers have developed loyalty to the company due to high quality goods, excellent services and one-stop shop advantage. The company has diversified to many sectors, which discourages competitors. By having its presence in virtually all sectors, it reduces competition. Buyer’s bargaining effects Buyers have a higher bargaining power leading to ore quality and lower prices Lack of substitutes leaves buyers with low power, implying they have no alternatives, but have to purchase at John Lewis Buyers have few alternatives diminishing their bargaining power. john Lewis in having products in a wide range of sectors leaves buyers with less power Suppliers bargaining power The company has many large suppliers to offer raw materials. This implies that suppliers have much lower power and have to deliver quality products to remain relevant. The company can pass the cost from suppliers to customers, the company’s profitability remains intact and any added costs pushed to consumers Suppliers have much higher powers, but the company can pass the costs incurred to customers Presence of substitutes The low price advantage insulates the company against substitutes. The low prices and high quality ensures that consumers do not have the need to find alternatives which may be of low quality. Customer loyalty to differentiated products in the company keeps them away from competitors High quality and highly specialized items in the chains insulates the company from substitutes Competition in the market The company competes in quality items and in lowering prices Customers in the company have developed loyalty and may not switch to competitors. Due to low process , quality and the ability to find anything in the chains, most customers have endeared the chains in their shopping Most competitors cannot meet the level of differentiation in products and offered in the company. This give the company a better advantage over its rivals Suppliers Suppliers at John Lewis have much less powers in influencing decisions and prices of products to the supermarket chains. For instance, the company was involved in a research project where they researched on ways to produce pig meat at much lower costs. Through such programs, the company may force suppliers to deliver high quality products while controlling what they deliver to the company, but suppliers may find it had to demand for price increments from John Lewis (Hill & Jones 2008, p.54). The act that John Lewis works closely with suppliers ensures the company maintains its quality and low cost in production, making such suppliers to work according to the demands of the company. Substitutes John Lewis in providing quality and differentiated products becomes highly insulated from the threat of substitutes in the market. The company has a history of providing quality products, which enabled the it to expand and find new markets outside the UK (Market week, 2008).Customers have a higher affinity for quality products, making the threat of substitutes a lesser risk to John Lewis John Lewis SWOT Analysis in the market Factor Description Strengths Has a wide selection of merchandise in all many sectors, making the chains a one stop shop. Has invested heavily in the agricultural sector though research projects making it possible to access farmers and suppliers Offers high quality products that have endeared many in the market Weaknesses A weak online shop that has raised much criticism from customers (Kollewe, 2010) Failure in the credit system that inconveniences customers Opportunities Possibility of new shops across Asia and Europe to expand market (Finch, 2010) Partnerships with foreign business to boost sales and market penetration Redesigning a more effective online shop to attract customers Threats High competition from new entrants and the existing large chains in the market More companies have initiated developments and research in agricultural sector, which was a preserve of John Lewis Increasing recessionary forces in the market threaten the market and purchasing power of buyers. Recommendations Due to increasing competition in the UK market, diversification to other markets approach particularly in the Asian continent where there remains potentially untapped markets would lead John Lewis to doubling the current turnover in the next five years. A well-grounded strategy towards venturing in new markets would water down the stiff competition in the UK. For instance, according to Finch (2010), in 2010 the company initiated the Business-to-Business approach that has so far offered much promising results to the company in markets such as India, China and Thailand, with the company’s presence expanding to over 25 countries. The company has to increase its presence in the Asian market particularly in the Indochina region and the Middle East, two markets with great potentials. For instance, John Lewis’ new franchises in Dubai were contributing about 60% in annual sales by 2011 (Finch, 2010), which implies that doubling the number of franchises would certainly increase the turnover by over 50%. Bahrain is another lucrative and untapped market that John Lewis has to target in opening up franchises. The plan would be to reduce the company’s focus in the European market due to the competition posed by larger chains such as Tesco and Sainsbury. Moving towards the Asian region that has less presence of the large supermarket chains would reduce competition for the partnership. John Lewis has a good supply network in UK, which the partnership may use to encourage increased production and then export such products to the Asian markets. A report by Alphen Capital projects retail sales in supermarkets and other chains to expand at a rate of 10.7% between 2010 and 2015 with most of this growth being expected in Saudi Arabia (Alphen Capital 2011, p.5). The cutthroat competition in the UK market offers the company limited chances to expand and widen its revenue base. However, the recent expansion to Asian countries has proved effective in increasing the company’s revenues. This may be achieved through merging with existing businesses in foreign markets or opening franchises in new markets to increase the market penetration and revenues. Some of the drivers that have shown a promising future for John Lewis in the Middle East market than in UK include a high disposable income in UAE and Saudi Arabia resulting from the high oil sales in these countries. Moreover, there are a growing number of tourists in UAE and the Middle East region with Dubai being a transit point, and the policies of most GCC governments to support and give incentives to foreign companies willing to set their operations in the region (Alphen Capital 2011, p.5). These factors promise increased profitability and a favourable political climate to operate. Currently, more customers in the GCC countries are leaning towards products with private labels due to their cheaper prices and quality compared to local market products; the number of these labels has increased from 42% in 2008 to 55% in 2012 (Alphen Capital 2011, p.5). Though Tesco and Wal-Mart have their presence in these markets, there is great potential for growth and untapped market in the region that John Lewis would capitalize on to perform to great heights. A KPMG Report (2012, p.3) indicates that in most Asian countries, the grocery retail demand is far from saturated and there is still huge potential of untapped market, which John Lewis has to tap. There are emerging demands for private labels, health foods and luxury products only found in large cities in most Asian countries (KPMG Report 2012, p.3). These products fall within John Lewis’ specialized line of products, which implies that the chains have a rich untapped market in the Asian region that they can use to double their current turnover. Another area that would require expanding is the internet shops that John Lewis has recently launched. Most Asian countries have much lower internet penetration density compared to European countries (Alphen Capital 2011, p.5), though online shopping has emerged as a trend that is gaining popularity at much higher rates in GCC (KPMG Report 2012, p.4). These tools would facilitate John Lewis expansion strategy to the Asian market where competition is much lower than the UK market. Instead of engaging in price battles with Tesco and Sainsbury, it would be better for the partnership to take advantage of the growing Asian economies with lower presence of such global supermarket chains. With the strategies that Waitrose utilizes in the UK market, the partnership would be guaranteed of carving a large market niche over its competitors, which would double its turnover in the next five years. Unlike other European markets where John Lewis has to take considerable time marketing its products and laying down competitive strategies over a saturated market, in most Asian markets as illustrated, there is an acute thirst of food and consumer based products. As a result, John Lewis as renowned brand name by having its presence in these markets, there would be a ready market where the company will not have to invest too much in brand marketing. Implementation and control In order to expand to new markets, John Lewis has to undertake strategic measures that would ensure its competitiveness as well as carving out a market niche that would not be threatened by its competitors. Among these would be to have an innovative and highly experienced staff base that would make the expansion strategy a reality. For instance, Hodgson is one of the executives that may play a huge role in turning John Lewis into a brand name in the targeted markets. Hodgson joined Waitrose from ASda, one of the main competitors and a highly performing retail chain. Duffy is another expert with valuable experience and was appointed to deal with a high budget advertising campaign to increase John Lewis market share in the UK market (Marketing Week, 2008). Moreover, considering that John Lewis has in the recent past rolled out the online shops, which have not been as effective as expected (Kollewe, 2010), there is need for John Lewis to hire personnel with sophisticated expertise in online shops and marketing. This would be important specifically to meet the changing needs of the GCC customer segment that has portrayed more preference to online shopping. A team of experts with expertise and knowledge in similar operations and companies will be a great asset in making Waitrose a household name. The rapid and successful expensing to Europe after the company recruited a few experts to steer it are good indications of what may be achieved in hag a team of professionals. An important change that would be realized from online marketing professionals is designing of an effective online shop to capture the large numbers of customers who prefer buying online, a strategy that Tesco has capitalized on in dominating the market. Research and development would be another area that John Lewis has to target to meet this goal. Research has to be based on how to come up with competitive products in a particular market, precisely targeting the market needs in the GCC and Indochina region markets. For instance, in UK, John Lewis invented the Waitrose dairy model through an integrated research and development program alongside its suppliers. The farming practice has separated Waitrose suppliers from the rest in the market (House of Commons 2009, p.434). Similarly, John Lewis can utilise a large farmer’s base in the Asian market to ensure cheaper and reliable supply of products than importing the same form UK. The company has a chance to establish a strong rapport with Asian farmers, which would help the company in carving a sizeable market niche. Farmers benefiting from the partnership would develop loyalty in supplying Waitrose with the required products. The approach had succeeded in UK and would succeed in the Asian market given the high market potential. However, for the GCC market, John Lewis might find it better to import products form UK, though there has to be comprehensive research and development initiative to target the needs of the market as closely as possible. Investing in research projects has endeared Waitrose among many farmers who double as its suppliers. The Corporate Social Responsibility that John Lewis has to carry over from UK to the Asian market has been of great importance in the success of the chains. One of the secrets behind Waitrose impressive performance is the ‘365 value everyday value’ philosophy that was imported from American supermarkets, and which has led to impressive performance in quality and customer satisfaction through lower prices (Cave, 2010). This philosophy would also apply perfectly when applied to the Asian market, where the company would wade through any competition from its rivals. Price cuts amounts to creating perceived value to customers, a strategy that would work greatly in the partnership’s expansion program to the Asian market. The ‘price-marching’ strategy in addition to its CSR strategies would be in accordance with the company’s mission and vision of providing quality products and placing customers at the centre of all their operations. Besides cost cutting, the strategy of letting employees share in the profit and ownership of the partnership has worked perfectly to the success of the company. If the strategy is introduced in the Asian market, many people would be willing to have a stake in one of the best global retail chains, which would be a grate competitive advantage over its rivals. Another change that Waitrose has to introduce would be borrowing from the MacDonald’s approach in the Asian market in balancing between globalization and internationalization (Vignali 2001, p.97). While globalization involves offering standardized products across the globe in treating the market as a single borderless entity, there would be need to consider the strict cultural and social dynamics in the Asian market that are different from the European region. To respect such cultural and social dynamics and remain competitive, John Lewis has to undertake an internationalization approach. This means that products are offered in a customized way depending on the specific market in line with their regional, cultural and social differences. Through internationalisation, John Lewis would also take care of markets away from the major cities where internet services have much lower penetration. This would be the best strategy to use in the GCC and the Indochina region. References Alphen Capital. 2011. GCC Retail Industry. Doha: Alphen Capital Bloomberg Business. 2011. John Lewis Partnership Plc. Bloomberg Business week, 7 October [online] Available at: http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=874389 [Accessed 28 Aug. 2013] Cave, A. 2010. Waitrose takes on the world. The Telegraph, 17 July. [Online] Available at: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/7896314/Waitrose-takes-on-the-world.html [Accessed 28 Aug. 2013]. Davey, J. 2011. John Lewis to outperform falling market. 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