Strategy of Waitrose in Grocery Market - Essay Example

?Overview of the U.K Grocery Sector The U.K supermarkets industry was worth more than ? 150.8 bn in which showed considerable increase of 3 compared to the last year (Schnedlitz et al., 2010). Food and grocery expenditure accounted for 0.52% of retail expenditure (Schnedlitz et al., 2010). Of this 0.53%, 21% is roughly spent shopping for the same in convenience stores (Schnedlitz et al., 2010). The private label brands, including Tesco, Asda, Morrison’s and Sainsbury’s have their unique brand identity and are not me-too or imitations of their branded competitors (Schnedlitz et al., 2010). The U.K retail market seems to be on the maturity stage of its lifecycle, however, growth is still quite prominent. The market is on its verge to a 15% growth in the next 5 years (IGD, 2010). Economic dynamics such as rising interest rates and consumer prices, house prices as well job insecurity are only few of a plethora of factors affecting firms in this sector (IGD, 2010).The new government following the election in May, 2010 also seems to bear impact by way of its proposed contractionary fiscal and monetary policy which could mean tough times for the high end markets. Waitrose- the company The company has its roots in 1904 when it was founded by Waite, Rose and Taylor (Waitrose, 2011). It was acquired later by John Lewis (an established partnership); hence, it was not until 1955 that the first Waitrose supermarket was born (Waitrose, 2011). At present the company has a strong foothold in the European market with 243 stores in Wales, Scotland and England, employing more than 37,000 people (Waitrose, 2011). The company claims to offer value for money along with convenience shopping. It targets the affluent segments of the market and is a high end store and follows a differentiation strategy (Randall & Seth, 2011). Thus, the company offers high quality, high priced products (Randall & Seth, 2011). The company remains restricted and has not expanded as much as the top 4 retailers. The company faces tough competition from Tesco, Sainsbury’s and Marks & Spencer in particular. Although supermarkets have traditionally positioned themselves on price and continue to lower prices in an attempt to secure customer loyalty ( through loyalty schemes), Waitrose does not follow the lead of its competitors and, instead, has always reflected itself as a premium quality brand, focusing on product quality rather than price (Randall & Seth, 2011). Furthermore, the company, under the umbrella of the John Lewis group, has projected itself as a socially ethical and responsible entity by sponsoring events such as “Fair-trade Bananas” and “Bag for life” (Cohen, 2010). SWOT Analysis Strengths: The company was an industry first in introducing the Quick check, self-scanning technology in its stores which reflects upon its innovative strategy and focus on delivering superior customer value (Jones & John, 2011). Furthermore, the company works under the umbrella of the John Lewis group which has given it enormous advantage in terms of economies of scale and established links with suppliers. The company was amongst the first to develop its line of own brands; it houses over 16,000 brands under its own name (MarketWatch: Global Round-up, 2009). Furthermore, the company won another industry first by winning the award for Organic food. Weaknesses: The company’s own label brands constitute almost 55% of its product mix. Thus, it is highly dependent on its own brands and ought to stock other brands (Jones & John, 2011). Furthermore, the company’s expansion opportunities are limited due to present coverage of its retail outlets. The company also has potential unfilled gaps in the market that it isn’t catering to and is positioned quite farther away from its 4 main competitors including Tesco, ASDA, Morrison’s and Sainsbury’s as well as Marks & Spencer. It has been positioned as a premium end brand and is perceived as too expensive compared to its rivals which is one of the major factors behind its low market share (3%). The company ought to offer greater differentiation by entering into the low price segments of the grocery market. The company also does not enjoy international presence; it should consider expanding into potential growing markets such as the U.S.A, Australia and the Middle East. Opportunities: The company has not yet expanded in the North-West which is in fact one of the biggest markets and has enormous potential for the company (Jones & John, 2011). Furthermore, the company has offered e-shopping facility to its customer; however, this convenience is subject to regional constraints and has not yet been launched on a full fledge basis (McEleny, 2011). Given the growth in number of internet users in advances economies, enormous potential lies for the company in this area. The company could also consider partnering with other major retailers (the way Boots and Sainsbury’s did) in order to achieve further diversification in its non-food division. The company has proposed the new store retail format named ‘Mark Four’ (Jones & John, 2011); however, again this major innovation has not taken off on a large scale and requires further attention. Threats: The company’s own label brands constitute 55% of its product portfolio; however, this poses major threat for Waitrose since its rivals, including Sainsbury’s, Marks & Spencer and Tesco, have adopted the strategy of capitalizing on their own brands segment with high profit margins (MarketWatch: Global Round-up, 2009). Thus, competition in the own brands segment is cut throat. The company’s majority of presence is located in urban areas where the congestion charge is on its verge of introduction. If this charge is introduced, it could adversely affect the company’s customer traffic and downplay on its market share. Research shows that 75% of the travelling to Waitrose is via car; hence, the charge could significantly increase the cost of travelling via car, reducing the customer traffic to Waitrose and increasing traffic to out of town retail outlets (Jones & John, 2011). Industry Analysis (Nine Forces) Barriers to Entry These are potentially high in the UK grocery sector (Randall & Seth, 2011). Development process of superstores is lengthy and requires heavy capital investments. Currently the top three players have strong backups to prevent their acquisition (IGD, 2010). They also determine the threshold level for profits beyond which new entrants would fail to make profits which is quite high. Bargaining Power of Buyers Buyers have strong bargaining power because they have a vast range of choices (Elearn, 2009). Prices are highly competitive so buyers can easily switch to other brands without any loss (Elearn, 2009). Around 94% of the customers have a choice of at least three grocery giants at their disposal within a time frame of 15 minutes (Randall & Seth, 2011). Bargaining Power of Suppliers Suppliers in this sector have weak bargaining power due to strong brand presence of supermarkets (Elearn, 2009). The industry is fragmented and retailers find themselves doing the role of middlemen and manage to rack up huge profits (Elearn, 2009). Government A new coalition government that has been elected following the election in May, 2010 is inclined to introduce a new range of stringent measures in tightening the economy (McNally, 2011). If the company continues to target the lower-middle income groups, these contractionary measures are likely to suppress demand for its products. Furthermore, there has been growing influence of EU legislations on business activity. The European Economic Agreement’s articles 53-57 can affect the company’s intentions of further acquisitions in future (Great Britain: Parliament: House of Commons: Environment, Food and Rural Affairs Committee, 2009). Acquisition and mergers, however, seem inevitable for supermarket retailers in U.K due to difficulty in getting government permission for new supermarket and tighter availability of land. The Food Retailing Commission has recently suggested that activities such as altering prices without notice and asking for payments from suppliers be banned (Hamilton et al., 2011). Monitoring regarding the license requirements and restricted access to raw materials has also been increasing. Social Facing a skewed population pyramid and an ageing population, the age profile in European markets is expected to shift to the higher scale in next 5 years, with a greater percentage constituting the over 65 age bracket (McNally, D., 2011). The participation rates of women and the older segments (through delayed retirements) are expected to contribute to this factor. Competitors Competition remains intense with the top 3 players including Asda, Tesco and Sainsbury’s. Me-too strategies have been widely adopted, such as that of Asda’s low price range strategy (Elearn, 2009). There is evidence of price wars between the top 4 players (Elearn, 2009). Technology The area of technology also remains a potential vacuum to fill for Waitrose’s. Where Asda is strengthening its customer relationships through its online website, and Tesco is using social networking technology such as facebook for its marketing, Waitrose is lagging behind with limited online presence (Smith, 2001). Substitutes Stores in convenience market may be substitutes; however, ever since the retail stores have diversified into the convenience sector this threat is decreasing (Kew & J., 2005). Food experts such as butchers may also be substitutes; however, due to the ease of shopping and greater variety of grocery sector, this threat too is diminishing (Elearn, 2009). International In view of the contractionary global effects of last year’s global economic recession and 2010’s growth rate of approximately 0.4%, the growth rates assumed for U.K for upcoming years range from between 3.2%-10% ( with an annual approximate growth rate between 2.75%-3%) (Kew, J. and Stredwick, J., 2005). Inflation is expected to increase by approximately 1%-1.75% in the coming years (Jovanovic, 2011). Conclusions and Recommendations Keeping in view various growth dimensions for the company, it is highly recommended that Waitrose expands its presence, both within Europe and internationally. Under the Market Penetration strategy the company could improve the quality of its existing offerings and ensure that the company’s core competencies are maximized. The company could also consider Market Development since it has limited presence, it could consider expanding the North West. Furthermore, the company continues to target the social groups A, B and C1 and has acquired a ‘niche’ for itself with the affluent British class (Jones & John, 2011). By doing so, however, it has imposed limits on its market share. It has been unable to tap unfilled niches including the Low Price, Low Quality segment as well as the Low Quality High Price segment. Perhaps, the most significant strategic decision involves the location decision (MarketWatch: Global Round-up, 2009). The company’s strategy of offering own brand range continues to contribute significantly towards its margins. Its online shopping facility has also proven to be lucrative; however, in this technology it has been a market follower rather than a leader. References: Cohen, N., 2010. Green Business: An A-to-Z Guide. California: Sage Publications. Elearn, 2009. Business Environment. 2nd ed. Burlington: Elsevier Limited. Great Britain: Parliament: House of Commons: Environment, Food and Rural Affairs Committee, 2009. Securing food supplies up to 2050: the challenges faced by the UK. London: House of Commons London: The Stationery Office Limited. Hamilton, G.G., Senauer, B. & Petrovic, M., 2011. The Market Makers: How Retailers Are Reshaping the Global Economy. Oxford: Oxford University Press. IGD, 2010. IGD: The food and grocery experts. [Online] Available at: HYPERLINK "http://www.igd.com/index.asp?id=1&fid=1&sid=7&tid=26" http://www.igd.com/index.asp?id=1&fid=1&sid=7&tid=26 [Accessed 1 December 2011]. Jones, B. & John, T., 2011. WAITROSE: AN EMPORIUM FOR THE MIDDLE CLASSES BROADENS ITS APPEAL. International Journal of Management Cases, 13(3), pp.341-46. Jovanovic, M.N., 2011. International Handbook on the Economics of Integration. Cheltenham: Edward Elgar Publishing Limited. Kew, J. & J., S., 2005. Business environment: managing in a strategic context. 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