Growth in Supermarket Acceptance in the UK - Essay Example

Business organisation and policy: Growth in supermarket acceptance in the UK BY YOU YOUR SCHOOL INFO HERE HERE TABLE OF CONTENTS Situation analysis………………………………………………………………… 2. Market strategy and operations………………………………………………….. 3. Specific factors leading to growth………………………………………………. 4. Implications for stakeholder groups……………………………………………... 5. Conclusions……………………………………………………………………… 6. References……………………………………………………………………….. Growth in supermarket acceptance in the UK 1. Situation analysis By the close of 2009, supermarkets in the UK such as Waitrose, Tesco, Sainsbury, Morrisons and Asda had accounted for virtually all of the food sold in the country. Growth in the retail foods sector can be attributed to many different changes in supermarket operating models that have improved selection through supply chain improvements. Additionally, growth has been experienced because of intensive marketing campaigns from the described grocers and changes to consumer buying behaviour. This report identifies how this sector has achieved such rapid growth as well as how this expansion impacts three key stakeholder groups: the consumer, the supermarket ownership and the external investor groups. 2. Market strategy and operations Growth in supermarket retailing is largely a product of this industry moving away from traditional business practices to become more market-oriented. Narver & Slater (1990) define market-oriented firms as those that restructure their operational capabilities and broadcast organisational intelligence in relation to customers and competition. These activities include restructuring distribution channels and improving operational models with a larger focus on advertising and promotion. Market-oriented firms, such as Tesco and Sainsbury (as two examples), have better internal processes to improve product variety and deliver on superior customer value through a variety of marketing practices directly related to consumer behaviour and consumer purchasing needs. In most consumer behaviour models, many different food products are considered latent needs: needs which are not always recognised by the consumer until it has been brought to their attention through advertising (Schultz, Tannenbaum & Allison 1996). Latent products are such things as frozen foods and frozen novelties. Where once these products were left to the consumers’ discretion after they had entered the food retailer, now they are being exposed to multiple marketing messages that provide perceptions of value, price or even convenience through targeted advertising and various internal or external promotions. This shift in advertising presence, either through the grocery outlet or through the product manufacturers themselves has brought considerable growth to names such as Asda and Tesco. Many supermarkets are also extending their corporate social responsibility efforts to make their store brand appear superior to customers in multiple market segments. Some supermarkets are using advertising to promote the importance of reusing different shopping bags for environmental purposes (annualreport2008.marksandspencer.com 2008). These efforts are operational model improvements that give customers a sense of involvement in the corporate activities of markets, thus building a sense of loyalty for dedicated businesses that value consumers, the environment or other social responsibility projects. 3. Specific factors leading to growth The current state of the economy has caused many consumers to change their previously-predictable buying behaviours, where they now believe that frivolity is unacceptable and being more frugal is fashionable (Rigby 2009). Many supermarkets that have witnessed growth are using different price-oriented promotions to lure customers who carry these values, thus providing perceptions of extended value to multiple consumer segments in a tough economy. For example, different frozen foods brands are using advertising for those UK consumers who once contributed to a great deal of food waste to illustrate how there is less waste in frozen products (Baker 2009). Where once UK consumers were turning toward local markets that carried a variety of produce and fresh food options, this growth in frozen foods advertising has them entering such grocers as Tesco and Waitrose to find this value related to waste production. Casatelli (2008) offers that there has also been changes in overall food consumption, with many consumers no longer frequenting external restaurants for their family meals, instead they find value and convenience in the many different food products now available in these supermarkets. Again, because of the difficult economic climate, consumers are eating at home and experimenting with different frozen foods meals that are not only less expensive, but have been supplemented by actual quality improvements in taste and function (Casatelli). The frugal-minded consumer finds value-added products such as frozen foods to be a quality option instead of the higher cost purchase alternative of dining out at their favourite restaurants and pubs in the region. Price-comparison sites are now available to consumers via the Internet, which spotlight different supermarkets and their product offerings. The economic downturn is yet another reason why these comparison sites have exploded in popularity (Smith 2009). Having options to highlight which specific brands are available at different markets have created a new demand in consumers that is coupled with their growing sophistication in Internet usage. Having the ability to look at different supermarket weekly specials, without the need for collection of different sales literature gives them a new convenience when planning their grocery lists. Extended products, outside of just foods products, is also another factor for why supermarkets have seen such tremendous growth in recent years. Tesco and Asda offer mobile phone options in-store, promoting packages for traditional calling services and pay-as-you-go mobile products (Donnelly 2008). The goal of this extension of product offerings is to get consumers to defect from different mobile providers and visit the supermarket for their mobile telecommunications needs. In some cases, it is promoted as a budget alternative to the bricks-and-mortar mobile providers in the region. Operational improvements in companies such as Marks & Spencer, which operates different foods stores and clothing retailers, have provided consumers with a new convenience that fuels growth in foods marketplaces. This organisation has developed what it refers to as the click and collect service, that allows consumers to order an article of clothing either in-store or through online channels, and then subsequently have that product delivered to one of its food retailing stores (Felsted 2009). The concept of one-stop shopping has quickly been becoming a favourite for consumers, however now it has added value and convenience by allowing them to guarantee non-foods delivery to their favourite supermarket. Asda is one grocery store that is testing different methods to involve consumers and help them choose different operational improvements to give them a better quality shopping experience. Asda has developed what it calls that Chosen by You campaign that asks for consumer opinion about different product designs before they are launched in-store (Ramsay 2009). The Chosen by You concept adopts a consumer panel that is asked every six weeks to give opinion about different ideas so that they are more interactive in decision-making at the corporate level. Whilst other retailers either lack this type of consumer panel or are not interactive with their consumer segments, companies like Asda are building loyalty through these improvements. There is also a growing group of different consumer segments that are becoming more concerned about ecology and preserving the environment. Asda has recently launched a 30-minute film documentary titled People, Prices, Planet that describes the importance of waste reduction, packaging efforts and sustainable product development (walmartwatch.com 2009). This documentary was broadcast every evening on Information TV for a period of three weeks, gathering opinion from respected groups such as Friends of the Earth, Greenpeace and different UK governmental departments (walmartwatch.com). The production of documentaries such as these help to build a more visible brand name for companies such as Asda, giving eco-minded consumers motivation to defect from local foods producers and visit the supermarket facilities. There is also growth in private label brand acceptance in many consumer groups, generally as a product of the current state of the economy. Aldi is one of these foods stores that offers private label products at a lower price without a great deal of advertising costs added to the product price tag. Aldi offers what is refers to as surprise buys that change weekly, and are made available for only as long as the stock levels remain (Dixon 2007). Aldi offers many different products, not just foods, including electrical items, sports equipment, toys, and certain discounted hardware (Dixon). This surprise buys programme invites consumers to take immediate action so as to experience the value, using traditional fear-of-loss marketing tactics to build patronage levels. Other retailers or local foods markets that cannot afford to expand their product line is another reason why Aldi is fuelling growth in the supermarket industry. Tesco is one of the most modernised supermarkets in the United Kingdom and continuously adapts its operational models to fit the needs of the modern consumer. Tesco has recently launched its first drive-thru supermarket concept store that allows customers to literally shop for their favourite products without ever leaving their autos (telegraph.co.uk 2010). There seems to be considerable growth in consumers’ needs for convenience and companies such as Tesco are willing to change their store concepts to give consumers what they are looking for. The advantages of using this service are that, first, the customer purchases their products online and then is given a reference number. They are then greeted by a Tesco employee who retrieves their items at a modest fee of only £2. Chief Executive of Tesco.com states, "This will be especially popular with busy mums who have the school run and childrens activities to manage. It also offers a solution to parents who want to avoid the challenge of shopping in a busy store with children in tow” (Hall 2010, 1). By advertising this concept store in this fashion, it appeals to the buyer segments that are forced to pursue convenience purchasing as a matter of lifestyle. This should be considered a new method of psychographic segmentation and targeting for supermarkets that are willing to redesign the entire foods shopping experience to meet consumer needs. Whilst local markets do not have the operational budget or facilities opportunities, Tesco uses its tremendous cash flow and operational expertise to bring higher growth levels to the foods industry. The supermarket industry is also experiencing growth due to the usage of loyalty cards, cards that offer publicised discounts on many of their foods products as a reward for continued patronage. Today, 85 percent of UK households carry one or more loyalty cards for supermarkets, including those such as the Tesco Clubcards (Jones 2008). A research study was conducted that showed consumers, when given a choice between two different stores, were most likely to choose a market where rewards could be earned (Jones). This is another factor that has fuelled higher growth in supermarkets as it targets the price-minded consumer as well as those who demand extended value in their shopping experiences. 4. Implications for stakeholder groups The consumer stakeholder is the most noticeably and positively affected by changes to how supermarkets develop their business models and promote their internal product or service offerings. Consumers are provided added convenience, along with price competition, that gives them more options for stretching their grocery pounds in a difficult economy. With guarantees of waste reduction, cost savings and loyalty rewards, consumers are able to procure one-stop shopping, instead of visiting multiple local vendors, and believe that they have found value in this decision-making process. With their growing sophistication in Internet usage, supermarkets provide an excellent alternative for convenience altogether. The business stakeholders, these being owners and executives of the supermarket chains, experience opportunities for improving the position of the business with the high level of acceptance currently being offered by satisfied customers. Internally, operational developments that lead to higher sales figures can build opportunities for growth in the company (promotion) to executive level positions. The growth in loyalty cards and rewarding customers for their patronage, especially in terms of price, has obvious implications to the business stakeholder. “Feeling good about the money they believe they’ve saved, some customers will indulge in small ways elsewhere in the store” (Graves 2009, 2). There is a certain level of psychology involved in these reward cards, based on many different consumer behaviour and decision-making models, that provides extended value to the supermarkets willing to extend price-related reductions to their target customers. These businesses do not always, anymore, have to rely on the specific foods manufacturers to satisfy clients in means of taste and quality, they are essentially able to accomplish this themselves through different loyalty and rewards schemes. With such a high volume of customers carrying loyalty or club cards, it provides new market opportunities for targeting. The only negative implication to the business stakeholder is the budget allocation increases that come along with promoting different social responsibility campaigns or in-store promotional materials. The production of eco-friendly documentaries can put a strain on the operating budget as well as different advertising partnerships with foods producers. Since many latent needs are not recognised by consumers until they are informed through advertising, cost is the most significant implication for this stakeholder group. Implications for the external investor are quite obvious as well. In order to sustain many of the existing programmes at these supermarkets, there is a need for increased internal labour and improvement of salaries for retention purposes. At Morrisons, as one example, labour payments increased 4.25 to 5.45 percent in 2007, with total wages and salaries totalling £662 million (morrisons.co.uk 2008). These are tremendous costs that can impact share value, providing investors with less dividends or other benefits of investing with various supermarkets. However, using Tesco as the example, external investors have been rewarded with considerable per-share price increases due to the business’ operational and concept improvements. Since January 2009, Tesco investors have earned approximately £46 per share because of their market-oriented business model designed to satisfy today’s UK consumer (uk.finance.yahoo.com 2010). Measurable, and in this case sizeable, increases in per-share value over a rather short period of time reinforces the high growth from operations and the ability to provide customers with a perception of value related to price, selection and overall brand quality. 5. Conclusions Growth in consumer acceptance of supermarkets may have negative effects on local vendors and local markets, however it is providing a new shopping experience for the demanding and, sometimes, frugal consumer segments. Having the ability to be guaranteed lower prices, along with the ability to compare market offerings and new online and drive-thru convenience makes these supermarkets more attractive than the traditional bricks-and-mortar vendors that often provide local produce and fresh foods options. The ability to procure low-cost frozen foods, with improvements in quality at the manufacturer level, fuels this growth when supplemented by creative advertising that targets psychographically based on lifestyle, social trends and the provision of value during a period of difficult economic growth in the UK. For the most part, all stakeholder groups benefit from these operational improvements and give supermarkets more visibility in multiple consumer market groups. 6. References Annualreport2008.marksandspencer.com. (2008), Building our brand: Annual report and financial statements. [online]. http://annualreport2008.marksandspencer.com/building/building_the_brand.html (accessed August 22, 2010). Baker, R. (2009), Brand sector report: love in a cold climate, In-Store, London. January: 29. Casatelli, L.M. (2008), Adding value, Frozen Food Age. 57, 3: 18-21. Dixon, P. (2007), Growth in green awareness and marketing changes leading growth, Strategic Management: 11. 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