A Discount Grocery Supermarket Chain in the UK - Term Paper Example

Strategic Management Table of Contents Table of Contents 2 0 Strategic Problems of a Firm 3 2.0 Causes of Strategic Problems 5 References 8 0 Strategic Problems of a Firm Kwik Save was a discount grocery supermarket chain in the UK. It was established in 1959 as ‘Value Food’. Rebranding to Kwik Save was done during 1960s. It was functional till the year 2007, after that it became defunct. The stores of Kwik Save were generally small to medium-sized ‘high street supermarkets’. The stores locations were generally in the areas where average income of people was quite low. In 1998, ‘Somerfield’, a supermarket group acquired Kwik Save in a transaction worth £473 million (Somerfield, n.d.). They had faced huge competition when super store Tesco and Sainsbury launched their own brands. In addition, other two discounters Lidl and Aldi had also entered the retail market. Several stores were closed around the United Kingdom and as a result the company went under administration. They also sold a few stores to Fresh Xpress but it was also under administration and ultimately all the stores were closed. Eventually, the entire of stores of Kwik Save closed in 2007 (Docstoc, 2010). Kwik Save had closed down 79 stores in order to survive in market. Kwik Save also sold its stores to Somerfield in 2006, and since then more problems aroused which resulted in lay off of several outlets, collapsing of sales as well as suppliers refusing to supply goods (Earth Times, 2011). The management of Somerfield realised that the outlook and inner look of Kwik Save stores would not fit well with the brand of Somerfield. They had warehouse style of inexpressive wooden shelving, space-saving undersized checkouts and thin passageway which needed to be changed by Somerfield. Subsequently, Somerfield decided to maintain and fully renovate the 102 best stores although the remaining 248 stores were fixed up for closure (Somerfield, n.d.). In 2007, Kwik Save was suffering from problems over delays in payment to its major suppliers and as a result several stocks of valuable products became limited in the store. One of the suppliers ‘Arla Foods UK’ also stopped supplying fresh milk in 2007 due to payment problems. In 2006, Kwik Save was suffering from “sharp fall in sales and mounting losses”. The market share of Kwik Save cut down from 1.2 % in April 2006 to 0.2% in 2007 (Docstoc, 2010). 2.0 Causes of Strategic Problems The company was focussing more on acquisition rather than improving the existing operation. Poor thinking as well as decision-making has been the prime cause of their strategic business failure. The store was not achieving their target since it was established (White Lane, n.d.). Firm’s Strategic Positioning Kwik Save was a successful grocery discount supermarket chain around the United Kingdom. They had developed the strategy to sell branded product in a cheap rate to attract maximum numbers of customer. This strategy led to an amalgamation of low fixed cost as well as severe central control. All this were the outcome of network of above 870 conveniently located and unpretentious stores located around the UK. It adopted a “no nonsense” approach for grocery retailing. The customer money was provided importance thus they were charged low rate for the products. But in 1970s and 1980s, the entrance of super stores hindered their growth and they could not compete with those retail stores. Firm was successful in strategy positioning when no other highly discount based retailers were present but due to the emergence of superstore they were left behind. The superstores were providing importance to leisure, comfort; excitement in the store but Kwik Save with its simple design, could not gain competitive advantage (Reference for Business, 2011). Firm’s Managers Analysis of the Environments of their Industry Andersen Consulting was appointed by the managers of Kwik Save in order to conduct ‘root-and-branch’ strategic review. Kwik Save was one of the “Britain’s number one discounter” but became vulnerable as superstores encroached upon their territory by placing almost similar cheap prices as Kwik Save. Tesco also made the same price when Kwik Save cut the prices of bean to 3P. The threats from continental discounters were also evident as the superstores were increasingly becoming a major threat. For Kwik Save, it was not possible to take hold of the review in its position as a discounter. Pricing pressure of beans, tomatoes along with corned beef had affected their gross margin. As compared to the year 1995, the gross margin fell by 0.2 per cent in the first half of the year. Owning to constant harsh trading practices the margin would further fall in the second half. The customer number was continuously falling after 3% fall in the first half of the year 1996. Thus, problems had affected the company to restraint back its programme of store opening. Therefore, only 35 new stores were opened in the year 1996 that reduced capital outflow from Pounds 145m to 120m (Stevenson, 1996). Stakeholder Expectation In order to meet the expectation of stakeholders Kwik Save retail store division merged with Somerfield on March 20, 1998 in an attempt to provide a complete variety of quality products to the customers at the lowest price as possible on the high street. The thought was about “no frills low pricing”. Somerfield undertook a £1 billion programme in an attempt to alter Kwik Save retail stores after the merger with Somerfield by making an attempt to modernise the original Somerfield stores (Somerfield, n.d.). Strategic Failure the Result of Strategic Misconception or Bad Luck Strategic failure occurs due to misconception of managers in adopting and implementing strategy in accordance to the need of the organisation. The failure may have occurred due to various reasons which include miscommunication, poor leadership qualities, no plan behind any idea, passive management and also motivation as well as personal ownership. “The failure to communicate the vision and strategic objectives to stakeholders” means that strategic developers are not providing enough information to the people about their strategy. If the managers adopted any new strategy for the organisation but do not communicate with others for implementing properly then the adopted strategy will be of no use for the organisation. Many a times, the managers do not disclose their opinion openly and thoroughly to the team members which may result in failure of strategy. Leadership qualities may be one of the reasons. The leaders are not effective in motivating the team member thus their weak leadership results in inappropriate allocation of resources and misaligned strategies. Poor planning for adopting any strategy may result in improper implementation, thus several strategies become left behind without being properly implemented. When the managers are not experienced to carry out effective plan for the organisation, it may lead to failure of the firm’s strategy. Motivation also plays a vital role in executing effective strategy because it may assist the employees to be supportive and gain passion and enthusiasm for implementing effective strategy (Johnson, 2011). Was Failure To Achieve A Competitive Advantage A Primary Or Contributing Factor? To gain competitive advantage, a company face various challenges which may lead to failure in certain case. The failure of achieving competitive advantage is a primary factor in the organisation. Competitive advantage can be the combination of one or more of the following primary factors such as price, quality, location, service and customer support. By fixing low price of a good or service, it may be a rapid pathway to attain high business or market share than the existing competitors but this strategy may lead to severe risk. Quality is a significant factor in almost every industry. Service is a serious matter in competitive market as customer generally prefers the quicker and sooner service provider despite higher cost. Location and customer support is a major factor to gain advantage over the competitors. With quality, affordability and competitive price customers can be attracted (Business, 2003). Kwik Save was having bad management and poor marketing team which was one of the prime reasons for their failure. The bad fortune that Kwik Save faced also can be considered as a contributing factor as they had to face various challenges in the competitive market. It tried to attract the customers by the policy of low cost products but due to introduction of superstore in the retail market, it could not work well. References Business, (2003). It All Starts and Ends with Competitive Advantage. Home. Retrieved Online on February 07, 2011 from http://itsallaboutbusiness.com/CAdvantage.htm Docstoc, (2010). Store Closure. Kwik Save. Retrieved Online on February 07, 2011 from http://www.docstoc.com/docs/70394472/Kwik-Save Earth Times, (2011). Kwik Save to Close Down 79 Outlets. Home. Retrieved Online on February 07, 2011 from http://www.earthtimes.org/articles/news/67580.html Johnson, P., (2011). The Top Five Reasons Why Strategic Plans Fail. Small Business. Retrieved Online on February 07, 2011 from http://www.businessknowhow.com/manage/splanfail.htm Reference for Business, (2011). History of Kwik Save Group plc. Kwik Save Group plc - Company Profile, Information, Business Description, History, Background Information on Kwik Save Group plc. Retrieved Online on February 07, 2011 from http://www.referenceforbusiness.com/history2/10/Kwik-Save-Group-plc.html Somerfield, (No Date). Background. Stores Closure and Transition management of Kwik Save to BTTF. Retrieved Online on February 07, 2011 from http://www.hilcouk.com/wp-content/uploads/2011/01/Hilco-Somerfield.pdf Stevenson, T., (1996). Kwik Save Losing The Bean War The Investment Column. The Independent Business. Retrieved Online on February 07, 2011 from http://www.independent.co.uk/news/business/kwik-save-losing-the-bean-war-the-investment-column-1345495.html White Lane, (No Date). There Is Hope for us all: a Sainsbury’s Store Can Close, As well as Open. Documents. Retrieved Online on February 07, 2011 from http://www.savetheheartofwhitehartlane.co.uk/Documents/whagnewsletter12.pdf Read More