A Strategic Analysis of the UK Grocery Market: The Retailer Co-Operative - Case Study Example

A strategic analysis of the UK grocery market: the retailer Co-operative Contents Contents 2 Introduction 3 Strategic analysis 3 PESTEL 3 Porter’s five forces 5 Opportunities and threats 6 Strength and weaknesses 7 Strategic choice 8 Strategy into Action 9 Reference 11 Introduction The UK grocery market has been steadily increasing. The grocery market in UK has grown from merely 93.3bn Pound to 146.3bn Pound in the year 2008. Despite uncertainties prevailing over UK the country still managed to acquire a reasonable growth rate in the grocery section. The four major retail chains in UK are ASDA, Tesco, Morrison and Sainsbury’s and accounts for 67.9% of the total grocery market (Li, 2008, p.2-3). The food cooperative retailing showed a growth rate of 8.7%, with an average profit of the overall industry to be 1.46% one of the highest profit level to be recorded in 37 years (Cumbie, 2007). Strategic analysis PESTEL The government of UK encourages the retailers to provide job opportunities ranging from locally based and lower paid jobs to high level jobs, high skilled and centrally located jobs. Retailing giants like TESCO employs students, elderly workers, disables at a large number. Retailing has a great impact on jobs (Ivory Research, 2011). It has been predicted that by 2015, the local government is likely to lose control over the retailers. The government will impose policies on issues relating the large retailers (Dowd, 2006, p. 62). The economic condition of UK grocery market is resilient to the economic downturn as compared to other sectors. The UK grocery market has shown an increase of about 3.15 from 2009 and amounted to 150.8billion Pound in 2010. The total household sector accounted for 12.8% of groceries making it third largest sector in UK. But the economic factors continue to point towards the low purchasing pattern of consumer. But a great opportunity lies ahead for the food and grocery sector (Nicholson, 2011, p.2). In UK the population mainly comprises of the retired people than the baby boomers generation. This trend discourages the retail groceries stores as they tend to eat less and also do not prefer travelling to a super market to buy groceries. The change in food habit among the UK population has changed drastically as they are more concerned about their health which has lead to a high demand for organic food (Ivory Research, 2011). The technological factors have very much influenced the retail sector of UK. The supply chain, process and operations of grocery are all influenced by technology. The supermarket has been widely affected by the online retailing of grocery. It has been surveyed that about 70% of the population of UK have accessed to internet. The government of UK has been promoting the use of eco friendly packaging and to add on this the Cooperative Group has been awarded the environmental leadership award (The Cooperative Group-b, n.d). In UK the legal system is in the favor of the retailers, the legislation does not put any constrains to the big grocery chains allowing the retailers more freedom in their modes of operation. The UK law provides three advantages to the retailers allowing the retailers to have more control over their brand production (Song, 2011, p.15). Porter’s five forces The UK grocery sector is highly dominated by the supermarket chains such as Tesco, ASDA, and Sainsbury. They have a huge power over the farmers and food processor thereby dominating the overall market and also because the switching cost is relatively low. The supermarkets produces own brand or through an agreement with manufacturers which they less at a relatively low price making the bargaining power of the buyers high (Sloman, 2004, p.291). The bargaining power of supplier ranges between moderate to low because of the fact that there is only big players in the cooperative retail sector as compared to the super markets and the suppliers are dominated by the big retailers in the food and grocery sector and they fear losing any contract with large supermarkets such as Tesco, Sainsbury’s and Asda. The threat of substitute is relatively low in case of grocery retail market. But the cooperative retailers posses a severe threat from the big super markets but with an increase in demand for the organic food the threat can refer to be moderate. The threat of new entrant is high for cooperative retailing as the capital required is not huge as compared to the supermarket which requires a huge amount of capital to be competitive in the market and establish a renowned brand name. New business can easily open up a cooperative store with a much ease. The rivalry among the existing firms is very high in case of supermarkets that are competing over each other with regards to product, price and promotions. Tesco faces competition from Asda, Sainsbury and vice versa. In case of Cooperatives the rivalry is moderate as there are not much cooperative retail outlets in UK. Opportunities and threats Opportunities UK grocers are continuing to grow and increase their market share not only in food items but also in the non food segment. The major four groceries are expanding more on the non food items. But the sales growth over the internet has been reported to remain slow to influence the grocery retailers to shift their market share (KPMG, n.d). The UK food cooperative has been undergoing a change from the traditional supermarket operations to convenience retailing. The UK cooperatives by diversifying into convenience retailing accounts for a massive opportunity as consumers prefers going to a retail outlet rather than the traditional supermarkets. The largest cooperative is the Cooperative Group with 1703 stores. These stores can further expand its business into localities which would further make the older generation convenient in shopping (Nicholson, 2011, p.7). The market is currently experiencing a significant change; there have been few new entrants in the industry such as Eurospa and Haldanes providing an alternative at the premium section of the market (CBRE, 2010, p.10). According to a report of IGD, The Cooperative Group is the largest convenience stores in UK. With the acquisition of Somerfield, the Group has been the fifth largest retailer with about 3000 stores. It has been reported to exit among the top 10 retailers to watch as it has been growing at a steady rate (The Cooperative Group, 2009). Threats Due to the financial crises the UK economy has experienced a dip by 2.4% and even estimated to increase further by 4.25. With an increase in the unemployment rate, the spending habit of the consumers has declined considerably affecting the buying behavior of the consumers. Thus this possesses a great threat to the UK retail grocery market specially the cooperative sector. Another similar economic downturn would lead the retail sector shattered as consumers have developed the tendency to save. Also a major threat lies from the competitors competing in the grocery section (Ivory research, 2011). Strength and weaknesses Strength A major strength of the cooperative retailing lies that the retail sector is growing providing a room for the cooperatives to grow. Also the cooperatives stores are shifting from the traditional supermarkets to convenience retailing stores. One of the largest cooperative retailers, The Cooperative group has been recognized as among the top ten retailers across the world. The group is UK largest retailer with about six million customers adding to its advantage it has been recognized as the largest business in the cooperative retailing sector (Parliamentary, 2011). The retail cooperative has introduced many innovations related to consumer and provides retailing with a motive to serve its customers with value and service. A major strength of the cooperative retailing is the introduction of organic food and natural food (Center for Cooperatives, n.d). Weakness The cooperative retailing sector is still in the growing phase and experiences an increased pressure from the retail giants. The traditional look of the cooperative is usually not preferred by the consumers and as a result the cooperative retailing has shown a shift towards the convenience retailing. Therefore the cooperative sector is being dominated by the retail giants as there is only one cooperative retailer as compared to four super markets. Strategic choice For further discussion on the strategic choice, The Cooperative Group has been taken into consideration. Strategic choice describes the strategy followed by the Company to succeed. It includes the business and corporate strategy. The vision of the cooperative Group is to be one of the best cooperative businesses in the world. Thus with regards to its vision, its success, competitive advantage and goals to be achieved have been identified as strategic options. The balance scorecard shows the picture of the company strategic goals and its vision. Figure 1: Balanced scorecard of The Cooperative group (Source: The Cooperative Group, n.d) The company has modified its strategy and aims to progress on honesty and openness with respect to auditing, sustainability accounting, accountability to its stakeholders, ecological sustainability, international development and investments into communities and campaigns. The Cooperative Group is mainly focusing on the sustainable strategy in order to improve the system concerned with management, governance, internal control of the company and accounting to provide openness and honesty as a part of the company’s strategy (The Cooperative Group-a, n.d). Strategy into Action The cooperative retailing sector either operates through a retail store or through pre order buying clubs. Cooperative stores are usually single store but it is evident that companies like The Cooperative Group have expanded into thousand numbers of stores. These types of retailers have also expanded into the non grocery businesses with a great extend of support for the natural and organic food products. The food cooperative which operates stores is incorporated under the state statutes. Cooperatives usually require a less amount of capital investment initially and also requires a financial contribution (Center for Cooperatives, n.d). Therefore most of the food cooperatives have matured as retails and more than one fourth of the retailers have opened up a new store or else undertaken a renovation. The co-ops are concentrating on expansion of stores or updating the store formats by adding prepared foods or by means of modernizing the facilities. Reference CBRE. (2010). UK Retail Outlook. [Pdf]. Available at: http://www.cbre.eu/uk_retail/research/research_content/UK_Retail_Outlook_June_2010.pdf. [Accessed on December 1, 2011]. Cumbie, P. (2007). Competition Drives Co-op Improvements. [Online]. Available at: http://www.cooperativegrocer.coop/articles/2009-01-19/competition-drives-co-op-improvements. [Accessed on December 1, 2011]. Dowd, J. (2006). HIGH STREET BRITAIN: 2015. [Pdf]. Available at: http://news.bbc.co.uk/2/shared/bsp/hi/pdfs/15_02_06_highstreet.pdf. [Accessed on December 1, 2011]. Ivory Research. (2011). Strategic Management of TESCO supermarket. [Online]. Available at: http://www.ivoryresearch.com/sample5.php. [Accessed on December 1, 2011]. KPMG. (No Date). What are the prospects for UK retail in 2011? [Pdf]. Available at: http://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/Latest%20News/RTT%20white%20paper%20Jan%202011FINAL.pdf. [Accessed on December 1, 2011]. Li, E. (2008). Supermarket Chains and Grocery Market in the UK. [Pdf]. Available at: http://www.ceibs.edu/bmt/images/20100319/23714.pdf. [Accessed on December 1, 2011]. Nicholson, J. V. (2011). United Kingdom Retail Foods 2010. [Pdf]. Available at: http://www.nutfruit.org/UserFiles/Image/pdf/usda4_110325.pdf. [Accessed on December 1, 2011]. Parlimentary. (2011). Written evidence submitted by The Co-operative Group. [Online]. Available at: http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenvfru/952/952we07.htm. [Accessed on December 1, 2011]. Sloman, J. (2004). Economics for Business. Pearson Education India. Song, W. (2011). Contributing Factors in Emergence and Growth of Chinese Grocery Own Brands. [Pdf]. Available at: www.ccsenet.org/journal/index.php/ijbm/article/download/.../6711. [Accessed on December 1, 2011]. The Cooperative Group. (2009). The Co-operative is one to watch say retail experts. [Online]. Available at: http://www.co-operative.coop/corporate/Press/Press-releases/Headline-news/The-Co-operative-is-one-to-watch-say-retail-experts/. [Accessed on December 1, 2011]. The Cooperative Group-a. (No Date). Materiality and strategy. [Online]. Available at: http://www.co-operative.coop/corporate/Sustainability09/Overview/sustainability-management/materiality-and-strategy/. [Accessed on December 1, 2011]. The Cooperative Group-b. (No Date). The Co-operative Group wins Environmental Leadership Award. [Online]. Available at: http://www.co-operative.coop/corporate/Press/Press-releases/Headline-news/The-Co-operative-Group-wins-Environmental-Leadership-Award/. [Accessed on December 1, 2011]. Read More