The Retail Grocery Market - Case Study Example

Everybody knows that retail is one of the most competitive economics sector. Shops, marketplaces, boutiques, super- and hypermarkets offer us great choice of different goods and foodstuffs. As defined by ONS the grocery market is the total turnover through all food stores with the exception of petrol sales. The grocery market was worth £119.8 billion in 2005, an increase of 4.2% on 2004 Groceries account for 13.1% of all household spending, making it the third largest area of expenditure, first is housing and second is transport Food and grocery expenditure accounts for 49p in every £1 of retail spending 20p in every £1 spent in food and grocery is spent in convenience stores. According to research from IGD’s new Grocery Retailing 2005 report, the UK grocery retail market continues to grow despite increased price competition, further consolidation and low food price inflation. The main drivers of this growth have been the convenience sector, the continued contribution from non-food and consumers trading up to premium ranges. Food and Grocery remains the third largest element of household expenditure, accounting for 13.1% in 2004, and for 49p of every £1 of retail spending. IGD Research 2005 offers such a kind of turnover data diagram The Supermarkets & Superstores sector continues to dominate the UK grocery market, accounting for around three quarters of total sales, which IGD values at £88.2billion in 2005.  However, this share of total grocery has fallen slightly in recent years as other sectors have grown more quickly. The Convenience sector continues to be a strong driving force behind the overall growth within the UK grocery market.   For every pound spent on food and grocery, consumers now spend 20p in convenience stores and IGD currently values the sector at £23.9billion, up 4.9% on 2004, which now accounts for a 19.9% share of total grocery. So we see that the turnover of the retail grocery market is very big. So it influences in many spheres of our life. So let’s try to identify the mission objectives and responsibilities of an organisation within its environment. To make our ideas more clear we’ll take a certain retailer, using for instance Tesco Company. Everybody can agree that the main aim of any business is profit earning. Even the relevant definition of “business” approves that any enterprise or company is created to earn money. Of course, shareholders of any business are its owners and want to get maximum profits. If a company stops producing profits it can be adjudicated a bankrupt. Everybody knows that retail is one of the most competitive economics sector. Shops, marketplaces, boutiques, super- and hypermarkets offer us great choice of different goods and foodstuffs. That’s why if any company has been taking the top positions for almost 10 years, - it is considered as a great success. Britain hypermarket net Tesco is one of such leaders. This company sails one third of all foodstuffs in the country. Tesco can firmly be named as a “national shop”. Rich, average and poor customers can find the foodstuffs according their wishes and financial abilities. Comfortable location, competitive prices, polite staff, great variety of goods and products, mainly, circumspect development strategy helped Tesco to become a really national shop. Certainly, all other mission objectives such as business extending the increasing of goods variety, attracting more customers are just secondary aims – the main is profit increasing. Let’s analyze the most important responsibilities, among which the main is responsibility to consumers. It aims to win and retain consumers by developing and providing foodstuffs of high quality. The managers of Tesco make certain that all foodstuffs associated with their company are of a strict quality that accords with and aims to enhance their market positions, to develop and maximize their use of and accessibility to technology for the benefit of their customers. According to Marjorie Kelly (1999, p.52), a cofounder and editor of the magazine “Business Ethics”, the corporation is designed to pay shareholders as much as possible and to pay employees as little as possible. Kelly suggests that in owning intangible value, shareholders essentially own employees—or at the very least, they have the right to sell them, which amounts to the same thing. According to Tesco policy, it seeks to create an environment which attracts and retains employees of high caliber and in which employees will feel valued for their contribution to the groups performance. Julio Moura, the CEO of GrupoNueva, in Costa Rica, indicated that as a company, we are part of this society; we have a certain privilege; we are educated; we have access to resources, and we have been entrusted with those responses, so we have also responsibilities to do something good, to make the community around us prosper. The understanding of responsibility here is that a company should respond to society because it has the ability-to-respond and because it is a part of society. A company has to forge relationships with charitable organizations whose objectives accord with the general nature of the groups activities, pursue initiatives for the reduction and recycling of waste, as well as the efficient use of energy, probably to implement remuneration practices which are designed to promote "environmentally-friendly" policies in the workplace. Tesco, for instance, invests money into public housing building, education development etc. But on the other hand such great grocery stores as Tesco bring losses for their suppliers. The Competition Commission report of 2000 raised concerns about the power of supermarkets over their suppliers. Tesco were found to pay the lowest prices to their suppliers. In 2000, Tesco introduced international ‘reverse’ auctions for its suppliers – food suppliers from all over the world are asked to bid to undercut each other until Tesco gets the lowest price. Farmers and other suppliers are put under enormous pressure to cut their prices, even blow the break-even point, or lose their market. Supermarkets use their power to dictate how, where, when and for how much their food is produced, packaged, stored and delivered. The Competition Commission report cited 52 ways in which supermarkets exploit their dominant power over suppliers. Of course such, economic and social policy is very dangerous. Now let’s try to investigate the problem with business struggle in retail grocery market environment. Between 1995-2000 the UK lost roughly one fifth of its local shops and services. If current trends continue, probably we will have lost a third of what is left in the next ten years, and many communities in the UK of 3,000 people or less will no longer have any local institutions such as corner shops, grocers, post offices and pubs. Losing such local facilities can lead to creation of food and enterprise deserts, loss of financial literacy, loss of employment, loss of outlets for local products and services, reduction of diversity of cultural and retail environments, and environmental impacts due to car-based shopping. The arrival of a supermarket has a huge impact on the viability of a rural community. It has been estimated that a supermarket opening will cause the closure of all village shops within a seven-mile radius. Supermarkets tend to import food into the region, whereas smaller food shops tend to buy food from nearby farmers and producers. In a survey in Ludlow, more than 80 per cent of food shops sold some local produce, and for many it was a large proportion of their sales. Money spent in supermarkets does not therefore stay in the community the way that money spent in local businesses does. A study in 2001 found that £10 spent on a local organic box scheme in Cornwall generates £25 for the local economy, compared with £14 if spent in a supermarket. As well as killing off bakers, butchers and greengrocers, supermarkets have now extended their ranges to include pharmacies, opticians, dry cleaners, photo developing, petrol stations hairdressers, and even weddings. The British Retail Planning Forum found that every time a large supermarket opens, on average 276 jobs are lost. Of course, small grocery stores and traditional corner shops owners are against great supermarkets and try to combat with them. For instance, active opponents created “Tescopoly” union. Their main goal is to destroy Tesco, which, they considered, became a monopoly and threatens the British wealth. But state fair trade rules agency analyzed the Tesco business but has not found out any monopoly features. Tesco owners said, that indeed it is absurd to speak about monopoly each time when somebody has a successful business without any state authorities participation and the market blocking for other retail companies. Nevertheless Tesco started opening small shops to low down the negative boom. Today it is one of the most dynamic segments of retail foodstuff market, but surely it can’t change the essence and negative circumstances of goods delivering process. Supermarket power is not limited to the UK. Globally the world top 25 retailers control 16 per cent of worldwide retail sales, but by 2009 it is predicted to rise to around 40 per cent. According to the Grocer magazine, Walmart’s sales for 2001 topped $218 billion, surpassing Exxon-Mobil for the title of the world’s biggest company in terms of sales. Walmart owns over 3,000 stores in the US and over 1,000 in South and Central America, Asia and Europe. Organisations are becoming increasingly global. The Internet has no boundaries (other than shipping costs), but store-based firms are also expanding worldwide; in each country there are established firms that are based elsewhere. Firms such as Boots and Dixons have a network of branches overseas, whilst many of the larger retailers, such as Monsoon, MFI, B&Q and food-based firms, are seeking to expand further in a range of other countries, sometimes in co-operation with (or by taking over) firms who are known in those countries. The performance of British firms in other countries has not always been successful, however. If Britain adopts the Euro, this will increase competition across Europe and may further encourage international expansion. There is more legislation, particularly concerning the claims that manufacturers and retailers make about their products. This is also affecting e-retailers: a recent case will bring them in line with other retailers in terms of what they say about their products. The increased use of credit cards has inevitably led to an increase in their misuse. There are particular problems with Internet transactions with ‘card not present’ status. Software is available to assist retailers in combating fraud in this area. There are now more single personal households, which has a particular impact on food purchasing patterns. So we can make a conclusion that the Supermarket Code of Practice simply isn’t working. Supermarket behavior is not changing, unfair trading continues to be the norm, and this situation is unlikely to change unless action is taken. A strong regulatory approach is needed to bring the power of the supermarkets under control, protect small independent shops and get a fair deal for farmers for their produce. At the same time, there is a need for greater support for alternative and innovative ways of selling groceries including local food schemes. The future UK grocery market size is dependent on the outcome of many factors. Some of them have the potential to depress market growth rates. They are: low general price inflation, price focus/competition, increased international sourcing, increased competitiveness, low population growth, economic recession, increased foodservice offer. Another can increase market value: greater non-food offers, consumers pay more for greater convenience, supply side shock/upsurge in inflation. According to all this factors the retail grocery market will grow furthermore in spite of all difficulties and numerous opponents of this process. References 1. Kelly: “Maximizing Shareholders Return: A Legitimate Mandate?” Perspective On Business And Global Change © 2000 VOL. 14. NO. 1 World Business Academy. 2. Kraut, Klinger, and Collins: “The Business Benefits Of Paying A Living Wage”. Perspective On Business And Global Change © 2000 VOL. 14. NO. 3 World Business Academy. 3. Peter Whitehead IGD, December 2002: ”The Size Of The UK Grocery Market” 4. www.tesco.com Read More