Within the food retail business sector there will be many big ‘players’, most noteably, like I mentioned earlier, WAL-MART. This is the biggest and most successful supermarket in the world.
Supermarket Structure
Wal-Mart was founded by Sam Walton in 1962 and became listed on the New York stock exchange in 1972.
http://asms.k12ar.us/armem/clark/timeline.htm
This business has grown and grown and not only is it the number one supermarket, it is also the worlds second largest corporation, behind Exxon Mobil. This is based on Wal-Mart’s 2006 revenue.
Wal-Mart reported a net income of £5.7 billion on £160 billion worth of sales. This gave them a 3.5% profit margin. Their revenue was up £13.5 billion than the previous year which is an incredible increase. It is thought that 20% of the food retail business sales are theirs in the USA.
http://investor.walmartstores.com/phoenix.zhtml?c=112761&p=irol-newsarticle_print&id=819386&highlight
They are also an international business having stores in Mexico, UK, and Japan. These all have different names but are owned Wal-Mart. Wal-Mart also sold its retail operations to South Korea, Germany, Argentina, Brazil and Canada. These all give Wal-Mart 20.1% of its total revenue.
Tesco is the UK’s leading supermarket but is also a very successful international supermarket chain. Its market value is about £29 billion and is the fourth largest retailer in the world. According to TNS superpanal Tesco’s share of the UK’s grocery market in the 12 weeks up to the 18th June 2006 was 31.4%. Tesco’s overseas stores currently accounts for 23% of its total revenue. Tesco’s success is largely down to its ability to diversify into other areas.
The 2nd ranked UK supermarket is ASDA, the 3rd is Sainsbury’s and the 4th is Morrisons
At this moment in time, with the current state of food retail, the public are purchasing most of their goods from large supermarkets, but this was not always the case. Many years ago people would have to walk through the shop front door and ask the shop assistant to retrieve their goods for them. The goods were basic and the stock was minimal. This type of shopping has slowly changed to what we have today and generally seems to change over family generations.
Legal, social and economic issues
In relation to economic issues within the food retail industry, the so called ‘big’ supermarkets are frequently buying out the ‘smaller’ ones, causing a rise in their shares. Investors or share owners are always scared that the bigger chains will muscle out the smaller chains gaining a larger share in the market share of business. In recent years Tesco have been masters in buying out smaller supermarket chains and making them successful. It is becoming a trend in the market.
In 1994 Tesco took over the Scottish supermarket chain, William Low. They successfully fought off Sainsbury’s for control of the firm, which operated 57 stores in Scotland. This instantly paved the way for Tesco to become successful in Scotland. From small beginnings in Scotland they are now very successful. Inverness has even been given the tag of ‘Tescotown’ since an estimated 50p in every £1 spent, is at one of their three Tesco stores. The most recent big takeover was Morrisons taking over Safeway. Morrisons completed its takeover for £3 billion after fighting off fierce competition from Tesco, Sainsbury’s and ASDA (Wal-Mart).
http://news.bbc.co.uk/1/high/business/3542291.stm
This now puts Morrisons in a perfect place to fight Sainsbury’s for the third place spot in the most successful UK supermarkets list. This again is causing an increase in share prices with people anticipating the value of Morrisons to rise.
Economists have generally been pleased with the new ‘big’ supermarket dominance, due to more jobs nationally becoming available. However, in the case of the Morrisons take over, there were altercations. It was said that an initial 1,200 non-store staff would lose their jobs. They said that these numbers would be replaced by increasing the number of staff within the stores and that potentially new stores could be constructed if the company has the success it predicts. Therefore creating more jobs in the future. Success within a business usually has a positive correlation with the number of staff that they employ. This is a good thing for local communities as when/if the success does happen, local jobs will become available. An economists view on this though could be a negative one as they feel that the whole British public could suffer. With the big supermarkets getting bigger and the small ones disappearing, it leaves less competition, meaning that their prices don’t need to be as competitive. It’s a monopoly effect and the big chains of supermarkets could boss prices too much. They are also putting farmers out of business, as they are not using the British produce as much as they have done in the past.
Food retailers must also be aware of the word sustainability. Every company will look at this word differently and decide how they want to combat it. The government expects to see companies doing something to improve the current situation. You will find normal recycling centres at most major supermarkets but in some cases, more specific units will actually be in store. These can be ‘bag bins’ situated at the end of the checkouts, which are there for you to recycle your used carrier bags. This is currently being promoted in Tesco by having a sign stating how many bags were used and recycled in a week.
Supermarket property management
Property management is another element that can help or indeed hinder a supermarkets success and most of the big supermarkets act very similarly over this subject. If we again look at Tesco then they own 85% of their property freehold. A long lease is taken out on the other 15%.
http://www.fool.co.uk/news/comment/2006/c060425h.htm
They do this because they can afford to. They have enough spare capital to continue running their business easily even though most of the money is tied up in the business. The freehold property owned by Tesco in the properties is worth £24 billion. If they wanted to make a lot of money quickly then they could sell their property and use that money for the required task. This is key because if any of their stores are failing, then this principle could either be used to help improve the store or to close it down, and a new venture could be started. Smaller businesses are not in the situation to do this, as they need all the money within their business to be available. This means they need to take out a lease. Some people would say that this is better for the business as you can see all of your money in front of you and you never have the worry of not being able to sell your property. Every business needs to be looked at individually. The food stores that will use lease’s, may still be successful, but don’t normally have the large net values like the big companies do. One type of small business that does usually own their property is family run corner shops. This is because it is their livelihood and they usually live above the shop. Most of Tesco’s 15% leasehold on property is in the Tesco express format. This is because they are usually smaller and are there as convenience stores. This is one of the reasons why the smaller chains of supermarkets are going out of business. An example of Tesco holding a leasehold agreement was in the orchards shopping centre, Haywards Heath. It was leased to them by F&C property asset management on a 15 year lease at a rate of £65,000 per annum. This runs as a Tesco express and is 6,500 sq ft in size.
http://www.fandc.com/newsdetail.asp?newsid=483
I did intend to retrieve more information on other supermarkets properties but I found that most companies weren’t willing to disclose any valuable information. I did however find out after speaking to the store manager of ASDA, Paul Allen, that his store in Portsmouth was owned by ASDA and that they’re figures were similar to the ones I read out to him about Tesco (85% freehold, 15% leasehold). He went on to state that it was company policy that no figures could be released and that no in-store photographs were allowed to be taken. I also found out similar information from Richard Morale of Sainsbury’s, Portsmouth. His store was built 14 years ago and is again fully owned by Sainsbury’s. They also own the adjacent building, Homebase. The site used to be industrial.
When supermarkets are considering either purchasing or renting a new store they need to consider very carefully where it is situated. Normally a main road or good access is essential. They need to attract as many customers as possible so the frontage of the store is key and must be easily seen and decorative. Within the store the layout is positioned carefully. In order to keep people in their store for longer amounts of time, essential items are placed towards the rear of the store. These normally include bread and dairy products. The supermarkets are then hoping for impulsive buying on other products as the customers walk through the store to their initial intended item. You will also find that confectionary is positioned by the checkouts.
Again if we look at Tesco, we can see that they are extremely successful in choosing the right location. You can see this by the revenue that they make. They are strategically developing their empire to try and boss the market. The other food retailers are doing this as well but at present Tesco is the most successful. One of the main reasons for this is their smaller store, Tesco express. Tesco express is usually a medium sized convenience store and is competing in the same market as Co-op and Spar. These two have not branched out into the supermarket area and are unlikely to do so as there is too much competition. At present they are both doing well but if anything they will have to concentrate on keeping their performance at the same level. Larger supermarkets are breathing down their necks and are ready to jump at the opportunity to branch into this market. It is not just as easy as that though. Like I have said this is what Tesco have done but they have had to think of how to do it successfully. They needed to situate their stores in areas that needed a little bit more than just your regular corner shop. Their new express stores have done this. They have been positioned in locations that are where their competition is minimal. One of these types of places is at petrol stations. Everyone who purchases fuel will be required to enter the store meaning that potential sales are there. This is not to mention the surrounding community who may require a few items that wouldn’t normally of been available.
In conclusion I would like to say that the food retail industry is definitely moving in one direction. The small corner shops are dying out and the ‘big’ supermarkets are only getting bigger and will continue to do so. We must be careful not to allow any of the ‘big 4’ to become too big as they could dictate the market. At present the competition is perfect, keeping prices low.
In the future I can see that the ‘big 4’ will control most aspects of the food retail industry and you will see small convenience stores like Co-op and Spar slowly die out. You have already seen this happen with the family run corner shops as there a far less than there used to be. The reason for this is that power lies with money and the big supermarkets can afford to buy the properties in the prime locations.
Bibliography
Wal-Mart history timeline.Retrieved 30th November 2006
http://asms.k12ar.us/armem/clark/timeline.htm
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Wal- Mart reports record fourth quartersales and earnings. Retrieved on 30th November 2006
- Tesco’s market share still rising. Retrieved 2nd December 2006
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Tesco unlocks its property value. Retrieved 2nd December 2006
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Tesco to open in the orchards shopping centre. Retrieved 2nd December 2006
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Morrisons seals Safeway takeover. Retrieved 3rd December 2006
http://news.bbc.co.uk/1/high/business/3542291.stm
