HOW SUCCESSFUL BOOTS & SUPERDRUG ARE, AND HOW BOOTS CAN ACHIEVE FURTHER GROWTH

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Retail Management

How Successful Boots & Superdrug are, and how Boots can Achieve further Growth

Authors:                        Sophia Alakija                  K0507340

                                Daniel Alvarez                K0517824

                                Esther Mpalanyi                K0604690

                                Shivani Rajani                 K0611276        

                                Michelle Williams          K0611429

                                

Faculty:                        Business and Law

Academic Year:                2007/2008 Level 5

Course:                        BABM5

Submission:                3rd March 2008

Word Count:                6279


Executive Summary

Executive Summary


Contents

Contents

Contents        

Introduction        

1.1.        Marketing and Financial information: Boots and Superdrug        

1.1.1.        Marketing        

1.1.2.        Financial        

Analysis        

2.1. THE RETAIL ENVIRONMENT: MACRO AND MICRO        

2.1.1.        The Micro-Environment        

2.1.1.1.        Competitors        

2.1.1.2.        Suppliers        

2.1.1.3.        Customers        

2.1.1.4.        Employees        

2.1.2.        The Macro Environment – PEST Analysis        

2.1.2.1.      Political legal and regulatory        

2.2. RETAIL LOCATION        

2.3. RETAIL IMAGE, POSITIONING AND REPUTATION        

2.4. STORE DESIGN        

2.5. PRODUCT ASSORTMENT        

2.5.1.   Prescription-Only Medicines        

2.5.2   Over-the-Counter Pharmaceuticals        

2.6. OWN BRANDS        

Recommendation        

3.1. RECOMMENDATION        

Bibliography        

Appendices        


Introduction

         

  1. Introduction

  1. Marketing and Financial information: Boots and Superdrug

  1. Marketing

Marketing plays a strategic role when it comes to the operations of a business. It is an important tool used to advertise products clearly and effectively in order to reach the target market. Boots recent marketing campaign involves a price discounting programme called ‘Lower prices you’ll love’ with price cut’s being made on more than 1500 products. On the other hand, Superdrug has decided to focus their efforts on their female shoppers in order to sustain consumer satisfaction. Superdrug has launched a new magazine called ‘Dare’, which will be available at a number of their stores to purchase. A number of their products will be featured in their magazine so it is an ideal method to invite consumers to view their products if they don’t have time to browse their stores. This is a new direction for Superdrug and sales of the magazine are expected to exceed 300,000 a month, which could prove to be a positive step in the right direction.

  1. Financial

Total revenue for Boots and Superdrug for the years 2006 and 2007:

Source: IGD Retail Analysis & Key Notes

Superdrug’s total revenue for 2006 was £1,030.0m and this decreased to £1,027.4m in 2007. The decline in revenue is due to poor sales and unsuccessful marketing campaigns. Boots financial results show exactly why they are one of the most successful health and beauty retailers in UK today. In 2006 their turnover was £14,096m and in 2007 it increased by 3.6% to £14,608m in 2007. Boots is thriving as a business, their yearly revenues are exceeding their rival by millions. In order for Superdrug to exceed their counterpart in terms of revenue, it is essential for them to step up their marketing campaigns in order to achieve this objective.  


Analysis

2.1. The Retail Environment: Macro and Micro

  1. The Micro-Environment

The micro environment deals with a number of internal factors which primarily affects the company. Factors include:

  1. Competitors

Marketing differentiation is an important factor Boots needs to take into account. Boots main competition is Superdrug, mainly because they sell similar products such as pharmaceutical goods which bring in vast revenues. Boots use marketing differentiation in their organization to gain a competitive advantage against their counterpart. In order to gain a competitive advantage, Boots introduced a programme called price discounting. In this programme, they cut more than 1,500 products down to achieve higher sales than their competitors. They also aim to spend around £5million on more price cuts. In retaliation to this, Superdrug introduced an investment programme costing them £46billion to renovate their current stores in order to gain a competitive advantage over Boots. This shows that competition is immense in the retail industry and vendors will spend large amounts of money in order to exceed their competitors.    

  1. Suppliers

It is imperative for Boots to sustain a good relationship with their suppliers to ensure product availability for consumers. Boots have stated: "We want to establish and maintain sound working practices with our suppliers" (Alliance and Boots). This statement is a clear indication of how adamant Boots are in ensuring and maintaining a successful relationship with their suppliers. To guarantee maximised success, Boots have a supplier manual stating their intentions for their business, and the steps to be undertaken to ensure that all their products meet the required safety standards before entering their stores.

  1. Customers

Customers are the key focus of any business, as without them the business would make no profit. It is important for retailers to take into account consumer trends. Since 2005, consumer trends have shown an increase in sales of more than 45% in cosmetics and toiletries. This will be beneficial to Boots as they can use this to their advantage to promote their cosmetic brands. Since consumer trends have shown an increase in expenditure, Boots can use this to focus on their toiletries and cosmetic products such as No.7 (their strongest cosmetic brand). Their primary competitor, Superdrug can also use this to their advantage. Superdrug has slashed prices by up to 50% on their products in their skincare and electrical range to gain a higher percentage of the market share.

  1. Employees

Boots employees add value to the business as reward schemes are available to keep them motivated and to sustain good customer service. The current scheme Boots have to reward their consumers with is the distribution of shares. According to the press release from Alliance Boots, "Almost 35,000 Boots employees have just been given free shares worth nearly 6.5 million under the Boots Group share incentive plan" (Alliance Boots). Full time employees will receive shares worth £250, whilst part time employees will receive a prorated award. Superdrug currently has no employee reward schemes, putting them at a disadvantage to their competitors. Jobseekers may be more inclined to work for Boots as they can see how much they value and appreciate their employees.

  1. The Macro Environment – PEST Analysis

2.1.2.1.      Political legal and regulatory

Political and regulatory issues need to be taken into account, as they have a profound impact on any business. The environmental regulations that surround the retailing industry are extremely important. The Environmental Services Association introduced ‘The Waste Electrical and Electronic equipment’ programme, which finances the collection and recovery of waste equipment. Boots have to follow this directive and provide facilities to enable customers to dispose of their unwanted equipment. This will increase their ethical outlook which could potentially increase their consumer base.

2.1.2.2.      Economic

Economic factors such as taxation, disposable incomes and inflation need to be taken into consideration and will have an adverse affect on Boots. Changes in taxation will result in changes to businesses revenues. As of April 2008, individuals who are on a low income and at present have a rate of 10% on their earnings will suffer the most. Low earners will see an increase in their tax bills, and are more likely to be on a planned budget than higher earners due to different pay levels. These significant changes will lead to a decrease in consumer expenditure.

2.1.2.3.      Socio-cultural

In today’s society, individuals are becoming more health conscious due to the influence of the media. According to a recent report conducted by Euromonitor, "Consumers across the globe are spending more of their hard-earned income than ever before on image and health enhancing products" (Olivier Hofmann 2006). Boots can use this information to focus on their marketing activities in their health and cosmetic products with the knowledge that consumers are willing to spend more on these products to look good.

2.1.2.4.      Technological

New technological advances can potentially be a long term benefit for Boots. Rexam, a manufacturing company specialising in pharmaceutical and medical products, has developed new Radio Frequency Identification enabled plastic pharmaceutical tags, which can be used to trace the origins of the product, giving customers a better understanding of its content. These tags are strong, unlike the old tags which have a counterfeiting prevention in place. The purchase of these new tags for pharmaceutical distributors may be expensive, but beneficial as consumers will be more confident in purchasing the products, revenues increasing.


2.2. Retail Location

This is one of the main concerns of a retailer when thinking of expansion and reaching the core target market set by any entity. ‘You can be the best retailer in the world, but if you set up your shop in the wrong place, you’ll never do much business’ (Sullivan & Adcock). The site chosen by either Boots or Superdrug is therefore crucial to their overall performance. Both enterprises have used locations that fall in to the Incremental Location category as opposed to the Planned Development option. So, the areas have been developed gradually, most likely near a town centre/mall or retail park. The latter usually consists of developments being planned prior to construction and include newer retail concepts such as the shopping centre/mall or retail park. Superdrug and Boots mutually seem to accept the Minimum Differentiation principle (Hotelling 1929) where it is believed that a number of competing stores will achieve superior performance if they are clustered together. This explains the reason for the clustering of certain types of store, particularly in city centres.

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Boots holds 30.2% of the market, and Superdrug, 6%. Both have premises in the UK, Boots having 1,464 stores in the UK, Norway, Netherlands and Italy with Superdrug currently having 703 outlets trading from more than 2 million square feet of retail space with an aim to have 1000 by 2009.

Superdrug has announced it will spend £9 million on a store makeover programme in 2007/8, and plans to open eight new stores with a new pink concept store in every major UK city i.e. London, Manchester and Leeds.

2.2.1.   UK Health and Beauty retailers, number of outlets per enterprise by ...

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