Business strategy of Waitrose - Essay Example

 Business strategy of Waitrose Introduction: This paper is an analysis of the business strategy of Waitrose. Waitrose is a business unit under John Lewis Partnership, and it is a chain of super markets. The company has 300 retailing units, operating in London and Southern England. This paper identifies the size of the retailing industry and its scope in the United Kingdom. It also evaluates the organizations strategy and that of the industry, in terms of the Porters generic strategy, and also by conducting a Pestel analysis. This paper also identifies the value chain strategy of Waitrose, and the various support activities aimed at supporting this value chain strategy. This paper also identifies the primary activities of the company, and the prospects of the company’s suitability, feasibility, and acceptability. This is by the use of the Ansoff Matrix. Finally, this paper has an appraisal of the company’s capabilities and resources. The Scope and the Size of the British Retailing Industry: The retailing industry in the United Kingdom plays a significant role in advancing and promoting the economy of the state. Studies reveal that the retailing sector in the United Kingdom contributes an annual GDP of 5%. Studies reveal that the retailing sector normally provides an annual tax of 17.5 billion pounds to the government (Spencer and Bourlakis, 2009). This consists of approximately 30% of the taxes that the government collects. The retail sector in the United Kingdom covers all business organizations that are responsible for selling goods and products to the general public (Towill, 2005). This retailing sector consists of large departmental stores, large chain of supermarkets, and virtual and independent stores. It is important to understand that Waitrose is a chain of British supermarkets, operating in the retailing industry. The retailing industry in the United Kingdom is a very important source of employment, Taylor (2013) denotes that it employs 10%, of the overall workforce in the United Kingdom. It is important to understand that the retailing sector in the United Kingdom consists of five major super market chains, and thousands of minor retailing units, operating individual retailing stores. The five major retailing units are Tesco, which controls 30% of the retailing market in the United Kingdom. This is followed by Asda, which controls more than 16.6% of the retailing market, and Sainsbury which controls 16.2% of the retailing market in the UK. Morrison chain of supermarkets controls 11.2% of the market, while Waitrose controls 4% of the retailing market in the UK (Adam, 2007). Industry Strategy Analysis: Porters Generic Strategy In this retailing industry, the major players are trying to out compete one another through a variety of strategies and methods. There are two major methods in which an organization can use for purposes of gaining a competitive advantage over its rivals. These two strategies are differentiation, and low cost strategy. The use of these two strategies, with a combination of a combination of the activities of an organization leads to the evolution of the generic strategies that are, differentiation, focus, and cost leadership. Retailing companies such as Tesco and Asda are known to be using the cost leadership strategy for purposes of gaining a competitive advantage over its rival organizations (Cox, 2010). Take for instance Tesco group of supermarkets. The company has over 3000 retailing units, and it uses its economies of scale to sale products at a cheaper costs. It is important to understand that because of its large size, Tesco is able get supplies at a discounted rate, and on this basis, the company will afford to sale its products at a cheaper cost. This is as compared to its competitors, which includes Asda, Morrison, Waitrose, and Sainsbury (Hales and Williams, 2007). The cost leadership strategy is the same strategy that is employed by retailing giants such as Sainsbury, and Asda. This is because, just as Tesco, these companies have large retailing units and on this basis, they can enjoy the advantages of economies of scale, which includes getting supplies at a discounted rate. It is important to denote that retailing giants such as Tesco, Asda, and Sainsbury appeal to both the affluent and the less affluent population of the UK market. On this basis, by using their cost leadership strategy Tesco, Asda, and Sainsbury aim to appeal to the middle class and the poor people living in the United Kingdom. This is a major factor that has made these companies to control a large market share in the United Kingdom. The strategies employed by Tesco, Asda and Sainsbury differ greatly from the Strategy employed by Waitrose (O’Keeffe and Fearne, 2002). Waitrose employs the differentiation strategy, whereby it focuses on its unique supply chain system to create value for its products. It is important to understand that the main target customers of Waitrose are the affluent people of the society, and the younger population, normally referred to as Generation X. These people who constantly need high quality products, and services, and on this basis, the company mainly focuses improving the quality of its products, services, and the store environment. It is important to understand that differentiation strategy involves taking advantage of the unique qualities of a business organization, and improving on those qualities for purposes of adding value to them. This will in turn help in satisfying the various needs of customers. The differentiation strategy that is used by Waitrose is depicted in the value and quality of its products (Lynch, Wysocki and Fairchild, 2001). Waitrose focuses more on its supply chain, paying its suppliers more than the market value for their products. This is to enable their suppliers to invest this money in technology that can help them produce products of high quality and value. These extra costs are always passed to the customers of the organization, and that is the reason as to why only the rich and the middle class can comfortably afford to shop at retailing units owned by Waitrose. Industry Analysis: Pestel: The Pestel Analysis below analyses the forces that have a direct impact on the retailing industry in the United Kingdom, and specifically on the operations of Waitrose chain of supermarkets (Kerzner, 2013). Political: New marketing are emerging, not only in the United Kingdom but all over the world such as that of China. This is because of the opening up of the Chinese economy. China is a lucrative market, and it consists of approximately 1.3 billion people. Creation of free trading blocks in the European Union gives the company a chance to invest in the countries forming the European Union. This will help in advancing the expansion strategies of retailing units in the UK. Economic: The 2007/2008 World Recession was a threat to the operations of retailing business in the UK. This is because it affects the shopping and retailing habits of people living in the UK, and the World. However, recession helped to advance retailing operations because more people were concerned with buying more grocery items. This was an opportunity for the growth of the industry. Social: Statistics indicate that the British economy consists of more aged people, as opposed to children. The old has a reputation of eating less food, as compared to the young. However the aged are known to prefer internet shopping (Anderson, 2005). The attitude of the customers concerning food is changing, because more are now concerned about eating healthy food substances. Technological: Evolution of the use of internet retailing Introduction of loyalty via information technology, making customers to stick to one retailing unit. Environmental: The government advocates for the use of packaging materials that have the capability to protect the environment. The retailing units are forced to introduce measures aimed at reducing the emission of green house gases into the atmosphere. This is in a bid to protect the environment. Legal: An increase of VAT tax to 20% An increase of minimum wages by 15.5%, resulting to an increase in the operational costs of retailing units. Porters Five Force Analysis of the Industry: For purposes of finding a reliable source of competitive advantage, it is important to use the Porters five force analysis. The following is the five force analysis of the industry (Liu and Ko, 2013). Threat emanating from substitute services and products: Threats emanating from substitute products are low from food items, but very high from non-food items. Under the food retail segment, substitute products are always found at small chain stores, and organic stores. Threat of New Competitors: Due to the liberal nature of the British economy, chances are high that new competitors will always emerge. However, to effectively compete in this market segment, there is a need of huge capital investment. Intensity of Rivalry: There is high competition in the food and grocery sector, with most of the competition emanating from small and convenience retail stores. Tesco is the leading retailing company in the UK, controlling more than 30% of the Market. Bargaining ability of Buyer: Buyers have a high bargaining power because of the numerous stores that exist. Studies reveal that customers are more attracted to products with low prices, and there is a high preference for internet shopping. Bargaining ability of Suppliers: Suppliers play an important role in the industry, and this is because without them, retailers won’t have anything to sale. However, their bargaining power is low, and this is because they prefer supplying to major retailing units and are afraid of losing those business contracts. The Value Chain of the Company, and its Support and Primary Activities: It is important to denote that in a bid to make Waitrose efficient and improve on its products, the company has employed a two point strategy targeting its suppliers and its customers. Waitrose has invested heavily in its suppliers, paying them an above market rate for their supplies. The main intention of paying this money to its supplies is for purposes of encouraging them to invest in research and technology so that they may produce and supply high quality products (Obitz, 2009). The main people who benefit from this strategy are the farmers who are responsible for supplying products to the company. The company, in a bid to improve the quality of its products has introduced an online shopping facility. This facility enables shoppers to make orders and pay for them through the internet. The company has good motivational policies aimed at motivating its work force, and encouraging them to work efficiently for purposes of producing high quality work. This is by giving them a yearly bonus of 20%. Employees are also encouraged to contribute to the various affairs of the organization (Cook, 2012). Prospects in terms of Suitability, Acceptability, and Feasibility: Based on the strategies that the company employs, then the prospects of the company is acceptable and suitable. This is because the main intention of the company is to penetrate the existing market, and compete effectively against industry leaders such as Tesco, and Sainsbury. The Ansoff Matrix consists of four major strategies a company can use in order to penetrate a given market (Hassan, 2012). These strategies are Market penetration, development, diversification, and product development. The company uses two strategies, that is product development and market penetration. By encouraging its supplies to use technology for purposes of developing their products, the company aims at penetrating the markets held by its competitors through superior products. On this basis, this strategy is feasible, and suitable, if only the company effectively implements the strategy. Strategic Importance of Resources and Capabilities: One major and most important resource of Waitrose is its human resource personnel. These people are highly motivated, and this is because they are also the owners of the company. Employees of this company are highly skilled, and extremely innovative, and this results into superior production of services to customers (Hird, 2008). The organization also operates a retailing website, Waitrose.com, which is a leader in the provision of online retailing services. This service has helped the organization to deliver high quality products to its target customers, and at a cheaper cost. Conclusion: The differentiated strategy employed by Waitrose is advantageous because the company gets the capability to improve on the quality of its products, and provide information regarding the same. This makes the customers to be able to access high quality products and services. Competitors are also unable to imitate the products of the company, preserving their unique identity. This strategy is disadvantageous because it is very expensive to implement it. On this basis, a company will always reflect the costs it incurs to its customers, making its products to be expensive, as compared to its competitors. Appendix: 1. Porters Generic Strategy: Porters identify two ways in which an organization can achieve competitive advantage. These methods are, differentiation, and cost leadership. To achieve this objective, Porter identifies three ways in which organization can adopt; these are focus, differentiation, cost leadership. These methods are referred to as porter’s generic strategy. The following diagram represents this strategy, Scope Cost Cost Leadership Differentiation Focus on cost Focus on differentiation Differentiation Competitive Advantage 11. Porters Five Forces: Porters Five Forces on the other hand is a strategy aimed at analyzing an industry based on five factors, namely, competitors, bargaining ability of buyers, and suppliers, threat from new business entrants, and threat of substitute services and products. 111. Pestel Analysis: This is a strategy developed for purposes of analyzing an industry in terms of the political economic, social, technological, environmental and legal factors that affect it. IV. Ansoff Matrix: This is a method of evaluating an industry, and was developed by Igo Ansoff. Under this matrix, there are four major strategies that an organization can use to gain a competitive advantage over its rivals. These strategies are, Market penetration, Market development, product development, and Diversification. V. Value Chain Method In analyzing the value chain of an industry, scholars usually break down the various activities of the company, during the process of adding value to its products. This includes the production process, the marketing process, and the pricing strategy. Bibliography: Adam, A. (2007). Handbook of asset and liability management from models to optimal return strategies. Chichester, England: John Wiley & Sons. Anderson, J. (2005). Waitrose food for all seasons: a year of delicious recipes.. London: Dorling Kindersley. b Cook, S. (2012). Complaint management excellence creating customer loyalty through service recovery. London: Kogan Page. Cox, P. (2010). Spedan's partnership: the story of John Lewis and Waitrose. London: Labatie Books. Hales, D., & Williams, D. (2007). Wow! That's what I call service! stories of great customer service from the Wow! Awards. Cornwall: Ecademy Press. Hassan, A. (2012). The value proposition concept in marketing : how customers perceive the value delivered by firms - a study of customer perspectives on supermarkets in southampton in the united kingdom. International Journal of Marketing Studies, 4(3). Retrieved April 20, 2013, from http://dx.doi.org/10.5539/ijms.v4n3p68 Hird, G. (2008). Green IT in practice: How one company is approaching the greening of its IT. Ely: IT Governance. Kerzner, H. (2013). Project management a systems approach to planning, scheduling, and controlling (Eleventh ed.). Hoboken, N.J.: Wiley. Liu, G., & Ko, W. (2013). Charity Retailing in the United Kingdom: A Managerial Capabilities Perspective. Journal of Small Business Management, 28, n/a-n/a. Lynch, K., Wysocki, A. F., & Fairchild, G. F. (2001). Publix Super Markets, Inc.: an evaluation of the store management structure. Gainesville, Fla.: University of Florida, Institute of Food and Agricultural Sciences, Food and Resource Economics Dept.. Obitz, C. (2009). Supermarket differentiation in the UK a theoretical and empirical investigation.. London: Diplomica Verlag. O’Keeffe, M., & Fearne, A. (2002). From commodity marketing to category management: insights from the Waitrose category leadership program in fresh produce. Supply Chain Management: An International Journal, 7(5), 296-301. Spencer, L., & Bourlakis, M. (2009). The evolution from corporate social responsibility to supply chain responsibility: the case of Waitrose. Supply Chain Management: An International Journal, 14(4), 291-302. Taylor, D. (2013). Grow the core: a practical workout to grow your core brand and business. Chichester, West Sussex, United Kingdom: John Wiley & Sons Ltd.. Towill, D. R. (2005). A Perspective on UK Supermarket Pressures on the Supply Chain. European Management Journal, 23(4), 426-438. Read More