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An appropriateness of applying PEST analysis, Porter's Five Forces, and Competitive Analysis on WM Morrisons strategy On its takeover bid of Safeway.

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Introduction

An appropriateness of applying PEST analysis, Porter's Five Forces, and Competitive Analysis on WM Morrisons strategy On its takeover bid of Safeway. Content List Content Lists.................................................................................................................2 1. Introduction........................................................................................................... 3 2 Defining the market................................................................................................3 3 PEST Analysis.........................................................................................................4 4. Porter's Five Forces...............................................................................................7 4.1 Degree of Rivalry.............................................................................................9 4.2 Threat of Substitute........................................................................................9 4.3 Power of Buyer................................................................................................9 4.4 Power of Supplier............................................................................................9 4.5 Threat of New Entrants................................................................................10 4.6 Five Forces company perspective................................................................10 5. Morrisons Competitive Advantage The Strategic Clock...................................13 5.1 Low Price Low added Value........................................................................13 5.2 Low Price.......................................................................................................14 5.3 Differentiation................................................................................................14 6. Conclusion ..............................................................................................................15 7. Referencing............................................................................................................16 8 Appendices .............................................................................................................19 1. Introduction WM Morrisons is UK's fifth largest food retailer, as per the market share. WM Morrisons announced �2.9 billion dollar, takeover bid for the Safeway Chain of UK super markets. By the end of the month, list of potential buyers included, WM competitors like, Tesco, Wal-Mart, Sainsbury and Bhs fame, Philip Green. In order to analyse WM Morrisons strategy, we look into the macro environment, using PEST analysis, and then the micro environment, with Porter's five-forces model (Nellis and Parker, 2002) is applied, which is a useful tool to analyse profitability in a market, and finally Morrisons competitive strategy in its take over bid, is evaluated, and developing its competitive analysis. Before we analyse, we look into the food retail sector, market, as it is this day. 2 Defining the Market UK food retailers are among the best in the Europe, and have been leading the way in product and store innovation and in systems. Report from Mintel's Retail Intelligence states, that food retailing in UK is one of the most dynamic and innovative retail sectors, with steady sales forecasted at 17%, between 2001 and 2006. Sales by all food retailers were �92.3bn (excl sales tax) in 2001, of which the grocers contributed �77.1bn (83.5%). Market is concentrated amongst, the six largest retailers, who amongst them hold, 70%, of the market share. ...read more.

Middle

It also does not give any assurance of profitability for a company, as there are many less profitable firms and not so successful performances, in this sector. Though industry has all the inherent strategy of the five force analysis in place, yet not able to perform. Like J. Sainsbury, on whom five forces, is well received, but is believed to be stuck in the middle. There are also other like Somerfield who is in the news, of a takeover bid, and is aiming for the top five retail competition very hard. 5 Morrisons Competitive Advantage: The Strategy Clock The Bowman's strategy clock will help us to analyse the strategy followed by Morrisons in Safeway bid, and its competitive advantage. Figure 3, The Strategy Clock (C. Bowman and D. Faulkner 'Competitive and Corporate Strategy `- Irwin - 1996) 5.1 Low Price and Low added value This is differentiating to price sensitive market segment, low price and low product quality. Grocery retail chains like Aldi and Netto follow this strategy, have a product line entirely in low price segment market. Their stores are basic, their merchandise range is relatively limited, with few speciality or luxury products, and at the same time their prices are very low. When an organisation seeks to attain a market entry, use this strategy as a bridgehead to build volume before moving onto other strategies.(Johnson and Scholes, 2001) 5.2 Low Price The low cost strategy requires the companies minimise their operation costs. Driver (2001) The organisation seeks to sustain over the competition on the basis of having the lowest cost base, so that competitors cannot hope to emulate it, and attain cost leadership. Asda, Tesco, Morrisons, has high sales and have been taking advantage of their lower costs by operating through their number of stores and its market share. Morrisons attributes its success to the low pricing and the quality of its products is also reasonable. ...read more.

Conclusion

A total of �150 million of cost savings have been identified as a result of the proposed Merger: * �75 million from combining two sets of buying prices together with the additional volume, which is equivalent to c.0.8 per cent. of the combined historic cost of sales; and * approximately �75 million from combining the Head Offices and central functions of the two groups. * Morrisons believes that the introduction of the Morrisons format and promotional and pricing policy across Safeway's larger stores would have a significant impact on currently achieved sales densities and customer spend. Morrisons anticipates that sales per sq. ft. in larger Safeway stores will reach current Morrisons levels in the financial year ending 31 January 2007, the third full financial year following the Merger, at a benefit of approximately �100 million. This will require an early investment in margin which will be funded in part by a reduction in marketing and leafleting costs, reductions in wastage and overheads and benefits from vertical integration as new facilities come on street. Tesco is UK's leading food retailer, with sales of �18, billion followed by J. Sainsbury, with �13, billion, ASDA Walmart,with �10, billion, Safeway, with �8.3 billion, Somerfield, with �8.2 billion, and WM Morrisons, with �3.5 billion, was placed respectively, amongst six top retailers, as on 2000/01. Each retailers has positioned themselves in this highly competitive market. Tesco is seen targeting middle level market and Safeway and Sainsbury is targeting at little upfront market and WM Morrisons and ASDA at downmarket. Retail industry, to have industry wide differentiation, as per its products and services, in terms of price, quality, service, which one can see pursued by department stores, like Mark and Spencer, Debenhams, Bhs, etc,(Profiting from the Customer Experience Economy, Forum 2003) As per US exporters assistance market brief, the growth of UK, food retail market has been low despite having voluminous growth, reason being UK is affected by the negative inflation in the food sector, due to what it calls as Wal-Mart affect, i.e downward pressures on the price, from ASDA/ Wal-Mart aggressive `Every Day Low Price Strategy`. 1 ...read more.

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