Type of a Diversification Strategy on the Part of Waitrose - Research Paper Example

Executive Summary Waitrose is in the business of retailing fresh fruits and vegetables with a market share of more than 2% in UK, with 143 stores. In order to further strengthen its position in the market, the company is in the process of implementing the ‘category leadership’ program for the last four years. Company had made good progress during this period. Waitrose was able to sell 20% more fruits against an industry average of 2%. Similarly the company’s revenues registered an increase of 20% against the industry average of 6%. Company could achieve such encouraging results even in the backdrop of a price hike of its average pack by about 7%, while the industry actually reduced the prices by about 2%. Though UK is not traditionally known for being a big consumer of fruits, but the trend is picking up fast. The 1990’s itself witnessed a big rise in the retail market chains. This trend on the one hand resulted in decreasing the number of fruit suppliers, while on the other it resulted in reducing the importance of wholesale markets and marketing agents. Industry also got a boost with the Food Safety Act-1990, which required that the food being procured from suppliers is safe. The supermarket chains have now started adopting product and price differentiation strategies for further growth. Quality has now become an important consideration for product differentiation. In order to optimize the space planning, Waitrose took a lead in adopting innovative products like MarketMax. With the reduction in number of suppliers, now only the big players remain in the business of supply. Role of these supplier firms has also changed over time, as these companies have also become multinationals with procurement being done from different countries. The strategy of ‘Category Leadership’ being adopted by Waitrose is bearing fruits with the company attaining good growth in fruit retailing, particularly in exotic fruits. SWOT Analysis Strengths Waitrose is part of a strong John Lewis Partnership plc group, which is a supplier of consumer goods in the fashion, household and food markets. Company’s main focus area is UK. Having the backing of a strong group helps not only in the form of giving it an identity, but also in the form of experience, reaching out to potential customers, clubbing the marketing decisions, planning out marketing communication strategies etc. Company has been able to establish itself quite well, despite squeezing of the profit margins. The category leadership strategy in particular has been able to provide it with more than 5% of market share in fruit retailing and leading share of market in some categories like Exotic Fruits Waitrose has around 150 retail stores in the country, which can cater to a large number of its customers. The company has a good standing in market, as is evident by the increase in sales in 2000, despite raising the prices over and above the industry averages. This goes on to show that loyal customers are willing to somewhat extra to have a product of Waitrose. A supportive legal position, with the Food safety act stipulating steps for ensuring safe and quality food, which in turn resulted in consolidating the positions of companies who are in the business of retailing quality items. Waitrose has been first off the block in implementing the cutting edge IT strategies The company has been coming out with quality food publications like the Quarterly Food Illustrated, the quarterly ‘Seasons’. Weaknesses Still the company is primarily is concentrated within the south of England. Despite having been in the business for so many years. The company requires to strengthen its presence in other markets as well, to take on the competitors. Waitrose doesn’t take stock of its business on quarterly basis. In this competitive era, when companies have in fact started taking stock of their business on a monthly basis, as this helps in taking a corrective course, whenever slight deviation appears. With the help of quarterly review, the company could have taken on the competitors much more effectively. Opportunities UK is just about 20% self sufficient in fruits, and the demand for fruits is on the rise gradually. Though traditionally UK is not known to be a fruit lover nation, but with growing number of consumers, better opportunities will certainly emerge. The category leadership strategy has so far given good results, it may well prove to be more fruitful in near future, particularly in view of the research initiatives taken up by the company. Waitrose has been continuously trying towards a better co-ordination with the suppliers. If such a co-ordination works well, then the company must be able to get a better deal. If the company can establish a joint mechanism with some of its suppliers, it can check the costs, quality and timeliness of its products quite well. Threats As compared to their European counterparts, UK consumers have a lesser appetite for fruits. If sufficient efforts are not made to widen the consumer base, this may result in lesser intake of fruits, which will ultimately lead to less than expected sales of fruits. With the number of suppliers becoming less, the leveraging power of the supermarket stores may be affected as well. With less number suppliers, the retail stores may not be able to negotiate for a bargain price. Particularly, if the suppliers start forming a cartel, they will then try to extract maximum out of the retailers. UK supermarket industry is fiercely competitive, with the likes of TESCO, Sainsbury, Asda and Safeway holding the lion’s share of the market. These companies have been continuously trying to get hold of more and more market share. With the purchase of Asda by Wal-Mart, the giant hyper market chain may start a fresh round of price wars. These hyper-market chains are in a better position to cushion their loss from one market with sufficient gains from another market. The ‘taste the difference’ strategy of a well established brand Sainsbury is primarily aimed at attracting the ‘would be’ Waitrose customers. Problem Identification and Discussion Of all the changes in distribution during the last century, those taking place in retailing have been the most dramatic. Totally new institutions have appeared in an industry that a hundred years ago consisted mostly of small general and specialty stores. The principle retailing innovation in the 1930’s was the supermarket, which introduced a number of principles of mass merchandising that cut costs and increased volume at a time when family incomes were strained. The original supermarkets, in fact were not very attractive, but times have now changed. With innovative techniques of attracting the customers, supermarket chains have established themselves in a big way. Supermarkets introduced the principle of self-service, wherein the customer is supposed to do the leg work, which resulted in reduction of the personnel cost of the supermarket. Self service also resulted in encouraging impulse purchases, as the consumer could physically touch and feel all the attractively packaged stuff kept on display. Waitrose has been trying hard to gain more market share, and to some extent the company has indeed been successful in its efforts. But, for a supermarket chain to acquire a brand identity in national and international arena, the company has to make its presence felt in a wider area. Waitrose has so far not been able to make a high value presence in other parts of the country other than the southern part of the country. Therefore the company requires to make sincere efforts towards gaining market share in other parts of the country as well. Waitrose is up against a formidable challenge of the biggies in the retail industries like Tesco and Wal-Mart, therefore it needs to adopt strategies helping it in taking on these companies. Taking reviews of the business on quarterly basis has almost become a norm on the part of companies now; therefore Waitrose too requires to adopt a more professional approach even in preparing the financial statements and taking reviews. While it is good that the company is not getting unnecessarily perturbed with daily share prices, it should of course be able to take stock of the success or failure of its strategies. The category leadership and management programme of Waitrose has been in operation for the last 4 years, but somehow the outcomes do not match with the kind of time and effort investment. The company therefore has to take appropriate corrective steps. Traditional marketing mix concept, first proposed by McCarthy in 1960, consists of Product, Price, Place and Promotion (better known as the 4Ps). Each particular marketing mix adds up to a certain amount of effort the company is making for the purpose of generating sales. Any plan to develop a competitive advantage must also be based on a sound analysis of just who the company’s competitors are. Therefore, the basic marketing strategy applied by a company is the result of the mixing of different marketing components and these consist of the following: Services or products offered; Accessibility and availability of service or product offered; Promotion or communication to prospective client; and Price charged for service or product offered. Waitrose therefore needs to take stock of its 4Ps and work more vigorously towards establishing its brand identity, increasing the number of loyal customers. Public Relations, Political power, People, Physical evidence, Process and Packaging are some of the Ps, which have also acquired centre-stage in establishing the brand equity. Winners will invariably be those companies that are offering more value for the customer’s money. The satisfaction level for a service or a product is crucial information for the producers of the product or service. The suppliers too have been on a consolidation course, as they are also sourcing their supplies from different countries directly. On the one hand better organized suppliers means a better supply chain, while on the other hand this gives them a better power of extraction. Michael Porter's Five Forces have become a yardstick for assessing industry profitability. They are; Buyers'/customers' power Suppliers' power Rivalry among competitors Threat of new entrants Threat of substitute products Therefore the bargaining power of buyers forms an important force, as per Michael porter. Threat of New Entrants Bargaining Power of Bargaining power of Suppliers Buyers Threat of Substitute product Waitrose appears to have taken the task of managing supplies quite seriously, as is apparent in its approach of playing an expanded role in managing the supply base, with the aim of inculcating the thought amongst growers as being known as ‘Waitrose growers’. Richard and his team has adopted the strategy of streamlining the supplies by taking into confidence the suppliers and growers. This in turn becomes type of a diversification strategy on the part of Waitrose, which will result in consumption of some of the resources of the company. in addition a good number of personnel from Waitrose will be busy with regulating the supply chain. This means the company is taking up some business which doesn’t form the core business of the company. Such an initiative could prove to be a helping one but it times, owing to seasonal fluctuations etc. it may prove to be a burden as well. It is worthwhile here to mention that much bigger names like Wal-Mart, Tesco etc. have not dared to venture whole hog into the supply chain, as these companies have preferred to concentrate on their core business only. References: 1. Phillip Kotler, ‘Marketing Management’ 2nd Edition, Prentice Hall Inc, 1972. 2. Marketing Teacher, ‘Five Forces Analysis’, available online at http://www.marketingteacher.com/Lessons/lesson_fivefoces.htm (Mar 16, 2007) 3. ‘11 Ways to make a difference’, ATKEARNEY, an EDS Company, available online at http://www.atkearney.com/shared_res/pdf/11_ways_difference_retailers.pdf (March 10, 2007) 4. Quick MBA: Strategic Management, “Porter’s Five Forces: A Model for Industry Analysis http://www.quickmba.com/strategy/porter.shtml (Mar 14, 2007) 5. Tomi Ahonen, Alan Moore, (2005), ‘Communities dominate brands’ Futuretexts, London, pp (2-20) 6. Dean & Company Strategy Consultants, Rethinking Portfolio Strategis, available online at http://www.dean.com/expertise/Portfolio_Strategies.pdf (Mar 16, 2007) Read More