Food Retailing Vertical of Marks and Spencer - Case Study Example

? Strategic Analysis- Marks and Spencer (Food Sector) Introduction While doing research on UK food retailing, Nicholson found that the growth and business trend of the sectors show divergent characteristics as against common retailing environment in the country. Such divergences in UK food retailing sector have influenced the researcher too take on this study while food retailing vertical of Marks and Spencer has been selected as key area of discussion in this paper. In such context, following sections will conduct internal and external business environment analysis of food retailing vertical of Marks and Spencer while UK will be locus of the analysis. External Business Environment Analysis Macro Environment PESTLE analysis of UK can be used in order to understand the macro-environment of UK that is influencing the dimension of food retailing industry of UK. Political In recent years, UK government has decreased spending on retail industry in terms of cut in subsidy and putting addition fair price burden on food retailers. On the other hand, UK governments’ decision of reducing corporate tax to 22% has helped food and other retailers to save additional amount of money from operation (Verdict Research, 2013). Economic Consideration of research report of Nicholson (2011) and Verdict Research (2013) reveals the GDP growth of UK was less than 0.1% while unemployment rate was close to 8% in recent years and due to ongoing economic crisis, consumer spending on retail food items has also been decreased by close to 3%. From economic perspective, food retailers are facing inflationary pressure which is decreasing their scope to avoid rising price of food retail merchandises. Social According to Verdict Research (2013), UK customers are showing the demand for healthy and more nutritional food choices in recent years due to increased health awareness and change in life style. On the other hand, demand for online retailing has also been increased among youth and teenagers and working professionals. Therefore, food retail chains have the option to invest resources in developing online distribution channel in order to cater demand of young customer segments. Technology Nicholson (2011) reported that most of food retailers are banking on latest technologies such as RFID, electronic data exchange, ERP, Big Data analytics in order to not only speed up the value chain process but also understand customer purchasing behaviour. Environment UK government has already advised large scale retailers (including food, grocery, clothing etc) to reduce carbon emission by 20% in the value chain within 2015 and due to such regulatory pressure, food retailing companies are also adopting the concept of green supply chain model to reduce carbon emission in the value chain (Verdict Research, 2013). Legal In UK, European Union labour law are being followed food retailers in order to handle human resource and labour related issues while Food Safety Act, 1990 is being used in the country to ensure control of quality in offered food items (Food Law Practice Guidance, 2012). . Business Trend Consideration of the report of Nicholson (2011) reveals the fact that UK food and drink retailing segment has been under consistent pressure for last three years due to intertwined factors like the banking crisis which decreases access to funds for retailers, decrease in household food retail expenditure due to ongoing economic crisis, marginalization of consumer spending on food retail items, rise of unemployment rate in the country etc. Due to conjoint negative impact of the mentioned factors, growth of UK food retail segment has been slumped for last few years. Such downturn can be depicted in the following manner; Figure 1: UK Food Retailing Expenditure Growth Trend (Source: Verdict Research, 2013) It is evident from the above diagram that consumer spending on retail food items has been decreased or remained flat for last three years in UK. Verdict Research (2013) reported that volume growth for food & grocery retailing was only 0.1% in UK and high inflation rate has forced food retailers to upscale the food price which is discouraging purchasing intention of customers. Global price rise for grains has created knock-on effect on wholesale price of wheat, meat, dairy items while global rise of oil price has also increased logistics costs for retail industry in UK. As of 2011, value of UK grocery and food retail industry is close to $275 billion while consumers spend almost 50% of their retailing expenditure on purchasing food items from grocery retailers and discount stores (Nicholson, 2011). For special food items as offered by Marks and Spencer, consumers spend 21% of their food retailing expenditure. As of 2013, almost 0.1 million groceries and food retailing stores exist in UK while the segment can be divided into 4 segments, 1- Supermarket Chains having sales area within 25,000 square feet, 2- Superstores having sales area more than 25,000 square feet, 3- Convenience Stores having sales area within 3,000 square feet and 4- Traditional Retail and Developing Convenience Stores having sales area within 2,000 square feet and it include green-grocers, newsstands, gas stations and liquor stores (Verdict Research, 2013). Figure 2: Food and Grocery Retailing Market Structure in UK as of 2011 (Source: Nicholson, 2011) It is evident from the above diagram that majority of customers prefer to shop from convenience stores when it comes to purchasing food items while discount food retailers are second most preferred option for customers. As a recent trend, UK consumers are not only shrinking their retail food purchasing budget but also showing the trend to purchase food from small level retailers and online stores. In such context, Verdict Research (2013) reported that in the next 5 years, online grocery and food market would covert 1/3rd of retail food merchandising in UK. For example, Sainsbury’s, Waitrose, Asda and Tesco already hold the leadership position when it comes to online food retailing segment in the country. In such context, Porter Five Force analysis of UK food retailing segment can used to understand the magnitude of pertinent industry forces. Industry Forces Buyer Power It is evident from the report of Verdict Research (2013) that top line and bottom line growth food retail chains in UK is heavily depended on purchasing power capacity of customers and willingness of customers to spend on food items. Consideration of food retailing market structure (Figure 2: Food and Grocery Retailing Market Structure in UK as of 2011) reveals the fact that switching cost for customer is low due to availability of food and grocery retail chains who offer similar kind of merchandises. Therefore, buyer power has been estimated as high in the industry. Supplier Power In 2012, UK government implemented some stringent rules in order to ensure fair prices being paid to farmers who supply meat, grains and dairy items to large retailers. In such context, suppliers have become more aware of the industry practices and they have started putting pressure on large retailers (Verdict Research, 2013). Therefore, supplier power has been estimated as moderate in the food retailing industry of UK. Threat of Substitute According to Verdict Research (2013), online retailing can be potential substitute for brick and mortar food retail stores, convenience stores and departmental stores. Online food retailing might be the future trend in UK but there are some underlying problems associated with such future trend such as, 1- establishing supply and delivery chain is very costly for online food retailing and 2- the demand for online food retailing is pretty much fragmented in case of UK while market is dominated by niche and specialized retailers whose products are unavailable in brick and mortar retail stores (Nicholson, 2011). Therefore, threat of substitute has been estimated as moderate low in the food retailing industry of UK. Threat of New Entrant The food retailing industry has already been consolidated due to presence of market leaders of more or less similar product offering and equal resource capabilities. Due to regulatory policy and economic volatility, setting up new food retail chain in UK is very cost intensive process (Nicholson, 2011). Due to presence of such factors, attractiveness of food retailing industry in UK has been decreased among new entrants. Therefore, threat of new entrant has been estimated as low in the food retailing industry of UK. Competitive Rivalry Nicholson (2011) reported that retail food segment in UK is pretty much consolidated in nature while top 5 players account for almost 85% of market share. Top 5 food retailers in UK are, 1- Tesco (market leader with 30.6% market share), 2- Asda/Wal-Mart (17.2% market share), 3- Sainsbury’s (16.2% market share), 4- Morrison’s (11.7% market share) and 5- Cooperative rounds (6.8% market share) (Nicholson, 2011). Other players in food retailing include names of Marks and Spencer, Aldi, Iceland, Waitrose and Lidl. Therefore, competitive rivalry in UK food retailing industry has been estimated as intense. Internal Business Environment Analysis Current Strategic Position and Tactics- Marks and Spencer It is evident from such external analysis that although Marks and Spencer holds the 5th position in general retailing format in UK but when it comes to food retailing, Marks and Spencer lags behind top food retailers. Therefore, it can be said that Tesco, Asda/Wal-Mart, Sainsbury’s, Cooperative rounds and Morrison’s are the key competitors for Marks and Spencer in food retailing segment of UK. In UK, private label retailing accounts for $100 billion but such trend is nonexistent in case of food retailing. For example, as a retail chain, Marks and Spencer offers 90% of its product merchandises as own-label goods but private labelling is not possible for perishable food items (Nicholson, 2011). Therefore, most of customers of Marks and Spencer go to other discount retailing chain and grocery stores when it comes to shop for daily consumed food items. On the other hand, Marks and Spencer limits offering to high priced and specialized food items such wine, ready-meals, Christmas gift foods, healthy food items etc (Marks and Spencer, 2013a). Therefore, it can be said that Marks and Spencer does not compete directly with Tesco, Asda/Wal-Mart, Sainsbury’s, Cooperative rounds and Morrison’s in grocery food and regularly consumed food segment. Every year, Marks and Spencer develops more than 1,500 new product lines into their Food Halls (Marks and Spencer, 2013b). Apart from using international dishes and nutritional food items to match changing customer requirement, the company has company synchronized targeted offers with and dynamic weekly price matching model in order to keep the product price at competitive range (Marks and Spencer, 2013b). Resource & Capability Analysis- Marks and Spencer Seminal research wok of Michael Porter (1991) reveals the fact that companies can achieve competitive advantage using strategies like product differentiation, cost leadership and offering diversified portfolio to a focused group. On the other hand, Grant (2011) contradicted porter’s viewpoint and suggested that companies can achieve sustainable competitive advantage by developing capabilities through resources integration and the concept has been known as ‘Resource Based View’ or (RBV). In such context, Barney (2008) and Kraatz and Zajac (2001) pointed out that to give sustainable competitive advantage, resources must be valuable (as valued by other players in the industry), rare (very few players in the industry has the access to the resource), inimitable (cannot be copied easily by competitors) and non-substitutable (cannot be substituted by other resources). On the other hand, Prahalad and Hamel (1990) used the term “Core Competency” to highlight those resources and capabilities which are being important for companies to gaining sustainable competitive advantage to companies. RBV model can be used to understand internal resource capabilities of food retailing vertical of Marks and Spencer. Table 1: Resource Based View- Marks and Spencer Tangible Resources Intangible Resources Capabilities Physical resource for Marks and Spencer includes more than 500 retail stores in UK, logistics facility, revenue from global operation, low debt equity ratio, assets and financial capital. Intangible resources for Marks and Spencer include strong brand loyalty, responsive staff, Quality of service and intellectual property rights regarding technology integration in special food items etc. Access to both intangible and tangible resources has helped Marks and Spencer to develop food retailing product portfolio as per requirements of customers and provide required push to sell food items . (Sources: Marks and Spencer, 2013b) Table 2: VRIN Analysis Marks and Spencer Valuable Rare Difficult to Imitate Non- Substitutable Core Competency & Competitive Advantage Physical Resource & logistics Yes Yes Yes No Marks and Spencer has established strong retail presence in UK which gives them the competitive advantage over other food retail chain when it comes to distributing products Financial & Intangible Resource Yes No No Yes Strong financial and intangible resource capabilities of the company help them to not only diversify product portfolio but also develop buffer pricing capabilities. However, most of the competitors like Tesco or ALDI have similar kind of capabilities hence it cannot give sustainable competitive advantage to the company. Reference List Barney, J., 2008. Resource based theory. Oxford: Oxford University Press. Food Law Practice Guidance., 2012. Food Law Practice Guidance (England). [pdf] UK Government. Available at [Accessed 9th December 2013]. Grant, R., 2011. Contemporary strategy analysis. 7th ed. Hoboken, New Jersey: Wiley. Kraatz, M. S. and Zajac, E. J., 2001. How organizational resources affect strategic change and performance in turbulent environments: Theory and evidence. Organization Science, 12, pp. 632-57. Marks and Spencer., 2013a. Food & Wine. [online] Available at: [Accessed 9th December 2013]. Marks and Spencer., 2013b. Annual report and financial statements 2013. [pdf] Marks and Spencer. Available at < http://corporate.marksandspencer.com/documents/publications/2013/annual_report_2013.pdf> [Accessed 9th December 2013]. Nicholson, J. V., 2011. 2010 Retail Foods United Kingdom. [pdf] GAIN. Available at [Accessed 9th December 2013]. Porter, M. E., 1991. Towards a dynamic theory of strategy. Strategic Management Journal, 12, pp. 95-118. Prahalad, C. K. and Hamel, G., 1990. The core competence of the corporation. Harvard Business Review, 68(3), pp. 79-91. Verdict Research., 2013. How the UK will shop: 2013. [pdf] SAS. Available at [Accessed 9th December 2013]. Appendices Appendix: Portfolio First of all, I want to express my gratitude to my supervisor for giving our group the opportunity to conduct strategic analysis of food retailing vertical of Marks and Spencer which has not only gave me sumptuous amount of understanding regarding role of internal and external environmental factors in shaping competitive position of companies. Key objective of the assignment was to conduct internal and external business environment analysis of food retailing vertical of Marks and Spencer while UK was the locus of the analysis. I have analytical problem solving (APS) model to conduct the analysis. As part of the analysis, I started the research by downloading annual reports of Marks and Spencer from 2010 onwards. I gathered significant of insight from these annual reports regarding business operation of food division of Marks and Spencer. Then I gathered information regarding previous strategic analysis of food division of the company in order to get idea about background context of strategic issues being faced food retailing vertical of Marks and Spencer. As UK is the central location for the study, therefore, I have conducted PESTLE analysis of UK in order to understand how macro environmental factors like political governance, economic volatility, change in social trend, emergence of latest technology, environmental issues and legal issues are shaping business operation of food retailing in UK. Existing research works and website publications are being used to highlight latest trend, market volume and future trend in food retailing sector in UK. To be specific, I have extensively used reports Nicholson (2011) and Verdict Research (2013) in order to understand business trend in food retailing in UK. In next phase of external environment analysis, I have used Porter Five Force Framework in order to understand how industry forces are shaping the dynamics of food retailing in UK. For example, magnitude of competitive rivalry between existing players such as Tesco, Asda/Wal-Mart, Morrison’s, Sainsbury’s and Cooperative rounds has been estimated as high. After doing the external environmental analysis, I have focused on doing the internal analysis of food retailing vertical of Marks and Spencer. Current strategic position and tactics of the company has been analyzed with the help of its 2012 annual report while pertinent issues are being covered with the help of internet research. In the next part, I have described briefly the concepts behind core competency; resource based competitive advantage and VRIN with the help of theoretical arguments of previous research scholars. In the application part, tangible and intangible resources of food retailing vertical of Marks and Spencer are being identified while capabilities of the company backed by tangible and intangible resources has also been highlighted in the paper. In the last part, VRIN analysis and core competency driven competitive advantage for food retailing vertical of Marks and Spencer has been identified. Physical Resource & logistics and Financial & Intangible resource are being selected as source of core competency for Marks and Spencer while implications of such core competencies being critically evaluated in paper. Read More