Size and Background of British Grocery Market - Assignment Example

An initial step within the planning for a marketing campaign is to effectively segment the market Introduction: Size and Background of British Grocery market The importance of the British grocery market sector could be understood best in terms of its size and limits of expansion. The grocery market was worth £146.3bn for the calendar year 2008, an increase of 4.8% on 2007. Food and grocery expenditure accounts for 52p in every £1 of retail spending and 21p in every £1 spent in food & grocery is spent in convenience stores. Figure 1: IGD Grocery Retailing 2005 There are 92,796 grocery stores in the UK. These could be divided along four group lines. These are as follows: 1. Convenience stores: A convenience store is a store that has a sales area of below 3,000 sq ft. The store usually remains accessible for buyers for longer hours and is responsible for the sale of products ranging to at least eight different grocery categories. The best known examples of the convenience stores are the stores like SPAR, Co-operative Group, and Londis among others   2. Traditional retail:  The traditional retail store has a sales area of less than 3,000 sq ft. Sellers like newsagents, grocers, off-licenses, & some forecourts fall under this category of division.   3. Hypermarket, supermarkets & superstores:  Supermarkets have a sales area of 3,000-25,000 sq ft. Superstores have sales area above 25,000 sq ft. Hypermarkets are over 60,000 sq ft. All three categories are responsible for the sale of a wide spectrum of mainly grocery items. These chains also sell non-food grocery items. The big known names like Asda, Sainsbury and Tesco fall in this divisional category.   4. Online channel: These make use of B2B and B2C techniques to sell their produce online, through the use of the internet. Figure 2: Structure of the market Source: Institute of Grocery Distribution Research, 2008 Sales of food and drink account for 65% of the total. Non-food grocery and non-grocery sales are becoming increasingly important. Non-food groceries are traditional grocery items like toothpaste, soap, health and beauty products. Non-groceries include electrical goods, fuel and housewares. About ¾ of sales are made in supermarkets and superstores. The majority of the remainder is accounted for by convenience retailing, with traditional small retailers5 now accounting for only 7% of sales. Sales through UK grocery outlets of £120 bn represent almost half of all retail sales, (valued at £246 bn at the end of 2004 (ONS)), and 13.1 % of total household expenditure. Gross Value Added (GVA)6 of the food and drink retailing sector was measured as £20.1 bn in 2004, or 2 % of total UK Gross Value Added. This was slightly less than the food and drink manufacturing sector (£21.3 bn) and the non-residential catering sector (£21.8 bn) but significantly larger than the food and drink wholesaling sector (£7.5 bn). GVA of the food chain (beyond the farm gate) totalled £70.6 bn in 2004. Employment in food and drink retailing exceeded 1.2 million in December 2005 – almost 5 % of UK employees. Over 60 % of employees were part-time or female (45 % were both part-time and female). Around 55,900 businesses in 2004 (ONS), with about 102,500 stores are classified as mainly or specialised food and drink retailers. Profit margins of the main supermarkets ranged between 2% and 6 % in 2004/5 (see Figure 5). Preliminary results from 2005/6 are mixed: Tesco continued its strong profit growth with higher sales, but Morrison made a loss. As far as the supermarket segment is concerned, the barriers to entry are extremely high given the fact that a big part of the market share is held by the four main UK supermarkets. The UK has a relatively open economy, and the government has little intervention with large mergers or acquisitions involving UK supermarkets (Supermarket Industry Evaluation, 2008). The government usually does not have to intervene with buyers in the supermarket industry, as supermarkets are very competitive and offer incentives to any customers they can get, such as loyalty cards. Markets are generally secure and make large economic contributions to the country. Consumers are faced with a wide range of well priced, quality goods, and that is hard to argue against, even by the government.  Market Segmentation: Lifestyle and Social Class Individuals with diverse product needs have heterogeneous needs. Market segmentation is the process of dividing a total market into market groups consisting of people who have relatively similar product needs, there are clusters of needs. The purpose is to design a market segmentation scheme that would be matching to and representative of the requirements of the people or a given set of individuals/ communities in a given market segment. It can therefore be defined as a ‘state of demand heterogeneity such that the total market demand could be disaggregated into segments with distinct market functions. Differentiation therefore could be sought on the basis of quality, quantity or some given innate characteristics (Cooper, 114)A market segment consists of individuals, groups or organizations with one or more characteristics that cause them to have relatively similar product needs. There are two Market Segmentation Strategies. Customers have unique requirements, aspirations and satisfaction levels. Some customers, though, are “similar”: they have common requirements for goods, services and ideas (Dibb and Simkin, 1993). If these customers' needs can be clearly identified and those with similar needs grouped in quantities of sufficient sizes, market segments have been determined. Each customer group – or market segment – has specific expectations and retail marketers must develop retail brands and concepts which cater for the needs of the segment targeted. Having decided on which segment (or segments) to target, retailers position their brands with an image with which the targeted customers identify. Market segmentation, targeting and positioning is a fundamental process in modern retail marketing strategy. The key decisions and the steps necessary for successful implementation are examined. One of the primary variables that could be used in the process of market segmentation where is through the usage of social classes (Loudon, 185). The significance if social stratification for the marketers is that there are marked differences in values, attitudes, and behavior of a given class with respect to buying behavior. These differences would therefore automatically provide a basis on which to segment markets and obtain enhanced understanding of the behavior of the consumers (Understanding Consumer Behavior). Some of the major findings of research on general social stratification will be summarized in this discussion with a view to how each class would react to a given strategy or a product in terms of their preferences and buying behaviors. Segmentation on the basis of lifestyle is a common approach ton segmenting the market. Individuals are grouped, based in their behavioral characteristics attitudes and opinions (Berkowitz, 172). To conduct lifestyle segmentation, marketing researchers profile consumers based on their responses to attitudes, interests and opinions (AIO statements). One could state at this particular point that the two variables are probably overlapping given the fact that most social classes have a certain kind of correlation with the kind of lifestyle that they follow. This would therefore mean that a person from a high social class, when he goes grocery shopping would be buying a brand that is different to the brand that a person from the middle class or the lower class would buy. This would also mean that the two variables affect the kind of supermarket and the method of product purchase that a given class uses in line with their lifestyle. The higher classes would probably prefer an Asda store while the middle income groups would go for a Tesco or a Sainsbury store in keeping with their lifestyle. So while the Walmart backed Asda would house designer labels that appeal to the higher class lifestyle patterns, Tesco and Sainsbury would house labels that would suit the lifestyle choices of the more middle income consumers. The upper class lifestyle would also mean that the brands such as Marks and Spencer would come into the fray of the discussion. From the positioning map you can see that Tesco, Sainsbury’s and Asda are all positioned very close to each other indicating the enormous amount of competition through price and quality. All three grocery retailers segment themselves towards new and growing families, as they are huge sector of the market, with much money to be made from. As you can also see Marks and Spencer’s is positioned at the top end of the scale for both price and quality, showing that they are perceived as a grocery retailer which provides a high standard of products at high prices, segmenting themselves as an sophisticated grocery retailer. Another major factor that one would need to kep in mind while exploring the market segmenting variables such as social class and lifestyle is the fact that online shopping is a big part of the business today. It has been seen by many as an opportunity for retailers and the UK offers a good market for this with the highest percentage of people online across the EU. And ‘already more British food shoppers have converted to online grocery shopping than in any other country’ (Keynote, 2001, The Internet Grocery market) Tesco is now the world’s biggest Internet grocer. Identifying the social groups along with lifestyle choices, the segment that would be most accessible by the internet as medium is an opportunity that needs research and if correctly administered can yield rich gains. The first class that one can identify with relative ease is the upper class. The lifestyles of the group have changed radically over the past twenty years or so. The group could be identified as a mix of qualities like post preppy, luxurious, counter cultural, conventional, intellectual, political and the like (Loudon, 187). A store that is set up in an upper class residential area would therefore have to house brands and products that appeal to these sensibilities. Upper class in turn has divisions like the new rich and the professionals. The middle class is at the top of the common man, also known as the average man, composed of managerial workers, small-business owners and highly paid blue collar workers. The working class is the poor but honest also known as the family folks. Finally, the lower classes are the members of the working poor emplyed at the frayed edges of the employment market. There are evidences to suggest that many social classes are relatable to lifestyle patterns. Many lifestyle items for example show significant correlations with the index of social classes, indicating that there is a definite although small difference between social classes in terms of lifestyle (Paley, 52) Items relate to social class comprise two essential clusters-the cultural activities and social interaction items. This view would therefore have one believe that social classes are a better marking stick for market segmentation as opposed to income groups. Income categories would seem irrelevant given the fact that social class would more likely be a more apt candidate in the analysis of shopping habits, store and brand preferences and media usage (DeThomas and Derammelaere, 74). In the grocery marketing sector for example, a number of low-priced consumer packaged goods, both income and social classes were found to have a co-relation with buying behavior. Product usage is also a lot more relatable to social classes. Social classes have differing media choice and usage patterns thereby making the job of the marketer easier in case he knows the segment that he needs to target along with the kind of medium that makes them most accessible. It must be remembered here that one cannot expect homogenous consumer behavior from the members of the same social class. Infact it has been suggested that a diversity of family situations and a nearly unbelievable range in income totals are contained within each class. There is therefore a considerable variation in the way individuals belonging to the same class realize class goals and express class values. It is also nearly impossible to point out a clear demarcation where one class changes to another. There is always a blurring or an overlapping of social strata. Another major problem with the application of these variables in the identification of market segments as far the grocery market is concerned, one might state that Consumers will generally buy their groceries at the most convenient place with the lowest price, and since the products they buy are identical in every chain they don’t mind which shop they buy their goods from (Waitrose Report, 2003). Concluding remarks: The first thing that one could learn from a study of the UK grocery shopping market is the fact that the market is dominated mostly by the supermarket chains with Tesco having more than 28-31 per cent of the market share, Asda 17-19 per cent and Sainsbury almost 15 per cent of the grocery market share in Britain (BBC Report). Given this fact a study of the marketing and the market segmentation would have to focus predominantly on the supermarket trend in UK given the obvious fact that the unorganized players do not have much of a say in the market ups and downs in general. More British food shoppers have converted to online grocery shopping than in any other country. […] However, Internet sales still represent a tiny, although growing, percentage of the overall UK grocery market. Most people use the Internet as a way of gathering information on products and making price comparisons before visiting their local store.’ (Keynote, 2001, E-Commerce). The second learning implication as far as marketers are concerned is the fact that online media is a going to be a big player as far as the decision on the future dynamics of the grocery market is concerned. Tesco is already the world’s largest online grocery retailer and the fact that it has 31 per cent of the market share is proof enough of the fact that online retailing as far as a B2B and a B2C category is concerned bears rich dividends (Tesco Case study). Finally, the most important implication from the analysis presented is the fact that the UK grocery market is probably one of the fastest growing and the most stable sector of the economy given the essential nature of its produce. The sector is bound to see future growth but this growth will in most cases be monopolized. However, Marks and Spencer as a retail and grocery brand with a difference has proven the fact that even in the monopolistic market like Britain obviously is, quality and difference would appeal to the higher ends consumers despite the expensive pricing. Finally, one could state that linear methods of research for the market are no longer relevant given the fact that income can no longer be the only factor that marketer can analyze in the formulation of his marketing strategy even in an essential commodities market like groceries. Variables like social class and lifestyle have their own role to play in the marketers directory. References Dibb S and Simkin L, 1993, Targeting, Segmenting and Positioning, pub, International Journal of Retail & Distribution Management, Vol.19. 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