Factors Of Influence On Retail Trade - Essay Example

?Sainsbury’s Contents Context 3 Key Issues 5 Theories Related 6 Implications 7 PESTEL Analysis 7 SWOT Analysis 9 Reference 11 Context The technology is altering the way work is organized today. It is transforming the necessity for what is known as the ‘schedule push’ and for the organization following the hierarchical style it entails, and as a result it is eliminating the type of authority that is traditionally applied to match reserves to operations, and consumer demand to services and supplies (Reep, n.d.). The “Retail Industry Leaders Association” (RILA) is the business alliance for the entire globe’s major and most pioneering retail firms. The members of RILA consist of above around 200 product manufacturers, service suppliers, and retailers, which collectively contribute towards more than 1.5 trillion US dollars in yearly trade, a great number of American employment opportunities, and above 100,000 manufacturing facilities, distribution units abroad and domestically, and stores (Ernst and Young, 2013). According to the reports based on IGD, the UK grocery market has been steadily increasing and is expected to grow even more in the coming future (Varley and Rafiq, 2004). The total grocery market has shown an increase from 163.6bn Pounds in 2012 to 169.7bn Pounds in 2013 i.e. 3.7% increase from the previous year. The market has faced some major issues such as the financial crises, high rate of unemployment, tight and limited household budgets to name a few issues (McGoldrick and Davies, 1995). In spite of the prevailing issues, the UK market has been able to acquire a stable and reasonable growth rate (IGD.com, 2013). The given diagram explains the trend of the grocery sector of UK- Source: IGD.com, 2013 IGD estimate that the grocery market of UK will be of ?205.9bn value in 2018. There are about 92,796 grocery stores in UK which is further divided into four sections, Convenience store; super markets, hypermarkets and superstores; Traditional retails and online channels. The biggest retail grocery chain in UK comprises of Tesco, Sainsbury, Morrison and ASDA, accounts for 67.9% of the total grocery market of UK (Li, 2008, p.2). The theme of our present report is analyzing the effect of one or more wider environmental factors on the retail industry as a whole and therefore Sainsbury’s have been chosen for the purpose as it holds the 30th position in the global ranking of retail industry “Kantar Retail Top 50 Retailer Rankings” (Kantar Retail, 2013). Sainsbury’s was set up during 1869 and presently it runs more than 1106 convenience stores and supermarkets that provide job opportunities to almost 157000 people. Customer is considered to be the heart of the organization and the firm continuously invests money for improving the experience of the channel partners and employees to offer the customer with the best “shopping experience” (J Sainsbury PLC, 2013). Key Issues Whilst Tesco has issues in almost each part of its operations, its greatest competitor Sainsbury's revealed an advanced move towards growth in sales by the means of “quality and service” (Gottdiener, 1998). Sainsbury successfully exchanged blows with its rivals like Asda and Tesco. Justin King, the chief executive of the firm stated that the success of Sainsbury primarily rooted from its excellent service quality and from the superior quality self-brand products. The firm has strongly protested against the “Price Promise” ad program of Tesco. According to Sainsbury, The program deceives the consumers since it proves to be a failure in pointing out that the firm’s own-label brands have original standards or excellent ethical benchmarks. Sainsbury’s claim had been supported by “ethical trading accreditation bodies” namely the RSPCA's Freedom Food proposal, the Marine Stewardship Council and the Fair-trade (Butler and Rankin, 2013). According to Justin King, fundamentally most of the customers visiting the supermarkets prefer to opt for discount stores like Lidl and Aldi, and these stores have been experiencing remarkable growth for the past years. However in spite of offering goods at discounted prices Lidl and Aldi failed to beat the superior service provided by Sainsburry’s. The in-house labels of the retailer like “By Sainsbury's” and “Taste the Difference” developed at a rate that is two times the rate of the external brands since the customers always find ways for saving money. Even the non-food department illustrates a steady growth of the firm. Around two 2/3rd of the UK inhabitants are yet not within a fifteen minute drive of the firm’s entire non-food coupons and merely 1 in 5 of the Supermarkets has a complete non-food gamut. Thus, potential store expansion therefore proves to be a great opportunity for development in this domain. Garments sale also showcase steady and rising trend at twice the swiftness of the food department. growth in revenues increased at the different convenience outlets from 15 percent to 20 percent which Justin King credited to the humid summer climate. Though, the online growth in sales slithered back from 20 percent to 15 percent and it has been suggested by King that the consumers had favored to come out in the sunlight rather than keep waiting for deliveries at home. However the present year represents that salary hikes are hardly 1% and Inflation rate is almost 3% which restricts the budget of the consumers. Theories Related The impact of technological advancement and globalization of the modern era has in turn fuelled the amount of rivalry among the firms and the process of innovation is being continuously adapted by every firm in order to draw the customers. As a result it has become the key objective of every business to satisfy its customers and supply them with the demanded products and services. In case a business fails to provide the necessary goods and services to its customers, the customer base shifts to the substitute market thus making the business lose its market share which proves to be a devastating outcome for the firm. Therefore each and every firm tries hard to retain their existing customer base because it is believed that a satisfied customer is equal to an advertisement for the company and retaining the existing customer is more profitable than replacing them with the new ones. Customer service, product quality and promotions are important motivators of shoppers even when they are looking for ethical and socially responsible solutions. It is however a difficult task to understand what exactly satisfies a customer (Megicks and et. Al, 2008). The potential behaviour of the shoppers can be estimated by evaluating their present consumption and buying structures. The study of the behavior of consumers not only takes into account the internal parameters but also the factors which are external to the firm which are accountable for affecting the decision of the shopper for buying goods and services. These external factors include the political, social, environmental, technological, legal and economic conditions of the nation. The buying behaviour of the consumer puts emphasis on every action and factor that takes place previous to, during and following the purchase of a certain product or availing some service. Thus, it not only involves the buyer and seller in the process, but also puts stress on other elements which directs and controls the decision-making procedure and behaviour (Liu and McGoldrick, 1995). Implications The implications from the study can be presented in the form of PESTEL and SWOT analysis of the firm. PESTEL Analysis Political: Recently Justin King, the chief executive of the firm started pressurizing the Government to relieve the load of tax on the “high street” since the store experienced a decelerate in quarterly sales turnover. Justin King, who used to be the business adviser to David Cameron, stated that for resolving the absence of a “level playing field” on levy comprised of a US-pattern tax on web transactions or a “shake-up of the business rates system” (Neville, 2013). Economical: The growing inflation rate and the poor salary hike is affecting the sales of the firm in an adverse way. Moreover, the rising level of food prices around the world would consequently make the prices of the goods to rise at Sainsbury’s. Further due to the growing fuel prices, the home delivery services of the store are subject to experience a sudden boost. Moreover the growing Gas prices are likely to hit the “Sainsbury’s Energy customers” as the firm is in affiliation with British Gas (Winch, 2013). Social: Changes in the social trend impact heavily on the business. With UK economic condition, the population of UK have changed their spending habits and prefer saving for future, hence reducing the purchase pattern of the population. Though the economy has proved to be stable in the current financial, still the UK consumers tend to save and not spend unnecessarily. Another social factor is emphasis made by the government to promote healthy eating particularly due to an increase level of obesity with the UK population. This has inclined a shift on the eating habits of the consumers and this provides an opportunity for Sainsbury to introduce healthy food. The firm dedicatedly follows its CSR and regarding it Luke Jensen, Sainsbury’s group development director stated that, “In our mind, [CSR] is something that is built in. It is something you have to do day in and day out. It is about culture" (Russell, 2013). Technological: A new technology creates new products ad new processes are in turn created by the modern technology. The internet seems to the key point for the growth of any company in the western countries. Sainsbury can use the e-retail to its advantage like its competitors Tesco which utilize its own online delivery model. The company can adopt technology like RFID which Wal-Mart uses for an effective and efficient supply chain. The e-retail market is currently growing at 16% annual in spite of the economic downturn (IMRG, n.d).At present the firm is working along with some researchers of Teesside University towards developing a new ?1M research project aiming at finding efficient means of improving the efficiency in manufacturing snacks and crisps while bringing down the oil usage to the minimum level possible. The University is required to present optimum proficiency in the domains of chemistry, food science and technology for managing and controlling the use of oil in the production process (Stones, 2013). Environmental: The food and grocery industry has achieved a zero growth in packaging. The UK food and grocery is working to reduce the impact on the environment by cutting HGV road miles, reducing wastes, and by cutting the green house gas emission. In the same way Sainsbury manages the environment impact through their climate change strategy. To undertake the strategy the company has divided the business into three sections, product, customer and the company’s operations. Sainsbury aims to reduce the impact on environment by introducing programs relating to the environmental activity between the current fiscal and 2020, and aims in becoming the greenest grocer of UK. The organization is working hard to introduce the world’s 1st ever, naturally frozen truck for storing and transporting food products with the aim of cutting down the company’s “carbon footprint” for almost 10000 tons annually (Business Green, n.d.). Legal: Sainsbury's is constantly pursuing a legal battle against Tesco's “Price Promise” mode of advertising, which maintains to contrast the cost of products at competitor stores, even own-brand products. SWOT Analysis Strength: The Company offers about 30,000+ products and also offers a wide range of non food products and services. The internet based home delivery service also adds to the advantage of the company (J Sainsbury PLC, 2013). Weakness: As compared to other grocery retail outlet, Sainsbury has the least number of types of stores. Tesco has six different store formats which have greatly contributed to the success of Tesco. Moreover rising food prices all around the world proves to be a concern for the firm and also the hike in Gas prices is likely to affect the consumers as the product prices might get increased. Opportunities: A huge opportunity lies with Sainsbury to grow as the UK retail market is growing at a steady rate, it provides ample opportunity for the company to utilize its resources and capabilities and grow and achieve a decent market share. Threat: Due to an increase in the tax rate from 26.1% for the year 2011-12 to 23.7% for the year 2012-13, the firm is thinking about the expansion plan throughout to provide services related to primary care in its outlets, with an additional 7 in-store General Physician surgeries that are still to be initiated across the nation this year (Davies, 2013). Reference Business Green, n.d. Sainsbury's debuts world's first naturally refrigerated truck. [Online] Available at [Accessed 4th November, 2013] Butler, S and Rankin, J. 2013. Sainsbury's 'quality and service' underpin improved sales growth. The Guardian. [Online] Available at < http://www.theguardian.com/business/2013/oct/03/sainsburys-quality-service-sales-growth> [Accessed 4th November, 2013] Davies, M. 2013. Sainsbury's plans a rapid expansion of in-store GP surgery programme. [Online] PULSE. 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