An appropriateness of applying PEST analysis, Porter's Five Forces, and Competitive Analysis on WM Morrisons strategy On its takeover bid of Safeway.
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
. 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
. 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. (Mintel, 2002).
WM Morrisons strategy is to create a dynamic national supermarket group, well positioned to compete successfully in the UK market place.
According to Morrisons chairman, Sir Kenneth Morrisons,
A merger with Safeway gives them a chance to transform the scale and potential of their group and their retailing strengths across the UK. The key focuses will be on:
- high quality products
- attractive prices
- a strong national promotional programme, and
- a business culture that encourages investment yet have tight control on all expenditure (WM Morrisons, 2003 )
In order to identify the factors that is, very much going to influence the food retail industry as of now, and WM Morrisons bid over Safeway, we apply, PEST analysis, to help us identify these factors and evaluate it on basis of WM Morrisons strategy.
3 PEST Analysis
A PEST analysis is concerned with identifying and evaluating the Political, Economic, and Social and Technological factors likely to impact the business in the time period under study.
As per figure 1, PEST chart we can see the main factors that is influencing food retail industry now.
Political factors:
European Economic Agreement (EEA):
Growing significance of European Union's (EU) legislations for businesses, operating within EU, as move towards European economics and monetary union, has seen its affects on the macro side of the economy; also its legislations are felt in the micro level. For UK it is in the areas of food imports, as it imports 65% of its food products from EU countries. Morrisons bid on Safeway, if successful, will make it fourth largest retailer and any other future mergers amongst the retailers could see, UK food retail, dominated by only three or four players. Thus retail sector is seen coming out of monopolistic competition to oligopolistic competition. European Economic Agreement (articles 53,54,57), competition rules that can affect the big retailers, are in the areas of barriers, competition, in days ahead, in the wider interest of other EU countries.
Government:
Government is under pressure, to intervene and curb supermarket stronghold on retailing in the interest of consumers, farmers, suppliers, competition. Increasing difficulty in getting permission for new supermarkets, pressure of availability of land, and restrictions on out of town shopping centres, retailers have been looking towards mergers and takeover of existing retail outlets, as an opportunity, to hassle free expansion. WM Morrisons bid if materializes, provides them an opportunity to takeover Safeway's 498 stores and have an increase in store space of 598 stores. The other areas in regulations that could affect WM Morrisons expansion strategy, is any regulations bringing restrictions on supermarket from expanding within their premises, like building of mezzanine floors, etc if the laws in this areas is passed.(The Guardian, 2003)
Competition Commission:
UK's Competition Commission, had investigated into the UK grocery retailing market, and had vindicated the UK supermarkets of excessive profiteering, this followed concerns raised, by the suppliers, there is expected to be legally binding code of practice to govern relationships between retailers and suppliers. This could affect future pricing strategy, for WM Morrisons and other retailers. Competition Commission is yet to clear WM Morrisons proposed take over bid of Safeway, due to sensitive nature of this issue. This is because, groceries market is essentially considered to be of local nature, because of the limited distance most consumers are prepared to drive for their main regular shopping trip, but it is of national considerations too on the issue of about pricing laws.
Economical factors
Out of Town Location:
Increased out of town locations means change in customers, as there is need of vehicle to reach there. Land-use planning has seen, out of town development restrictions, on new site, which has seen pushing of existing land and building costs. The impact on town centres and small shops of large out-of-town shopping facilities.
WM Morrisons has built for itself a reputation through consistency in product pricing and quality. It has proposed product promotion strategy, national pricing, strong cultural change, on Safeway stores, nationwide. Besides coming of hypermarket, e-marketing, home shopping, will help in overcoming barriers in , between retailers and consumers. Home shopping, is widely considered to come of age, as Argos has been promoting its products, using these concept and Tesco, has been successful with its e-marketing, initiatives Besides, selling through synergies, franchised locations, locally,
The pressure of economic slow down has seen companies work on high volumes and low margins, and cost of groceries are sold below rate of inflation in real sense 9.4%.
will help to solve out of town location problem, these areas be overcome. WM Morrisons as a brand has been very much valued, as we see ahead in the report, consumer preferences, and advocacy rate is high for it. This should help it sustain, in any pricing phenomenon, whether upward or downward.
Social factors:
Demographic factor:
Food retailers has found, food to go sector, as an additional key selling product, and a new business opportunities thanks to demographic changes, in age and working population. WM Morrisons has 1000 specialities in food to go sector, and 150 products in buy one get one free category. WM Morrisons contribution to the exchequer has been, £ 339.9 million, in VAT, and £ 102.3, million, in Corporate tax, for the year february 2003. While Safeway's contribution for the first quarter of 2003 has been £709.2 million, in VAT. Super markets has been major contributors to government exchequers, in taxations, and has been of social importance, being a major employer in the industry, WM Morrisons has 46,000 employees working on its stores, and Safeway has around 85,000 employees working on store.
Technological factors:
Technological factor has helped in reducing the barriers of entry. It has also supplemented in the cost of capital in other areas, to enhance services. E-tailing, online sales, helps to reach specified customers, also, unreached customers and markets. A good storage systems, helps in maintaining proper outsourcing from other stores , and have effective supply chain management. For retailers, technology could be helpful in understanding consumer buying decisions.
PEST as drivers change, is of very much significance, in the macro environment. As food retail market is saturated, retailers enter new market as Tesco has ...
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Technological factors:
Technological factor has helped in reducing the barriers of entry. It has also supplemented in the cost of capital in other areas, to enhance services. E-tailing, online sales, helps to reach specified customers, also, unreached customers and markets. A good storage systems, helps in maintaining proper outsourcing from other stores , and have effective supply chain management. For retailers, technology could be helpful in understanding consumer buying decisions.
PEST as drivers change, is of very much significance, in the macro environment. As food retail market is saturated, retailers enter new market as Tesco has in former East European countries, for greater economies in scale, and profiteering through wider scale of operations
The level of macroeconomic activity is affected by the relative size of injections into and leakages out of the economy at any given time, where injections are investment spending, government spending and export revenue, and leakages are savings, taxation and import spending.(Nellis and Parker, 1999)
WM Morrisons, is able to gain economies of scale in purchasing and distribution. Its five major tasks on integration with Safeway, reveals that. Conversion of regional distribution centres, 358 safeway's store above 15000 sq feet, to be converted to WM Morrisons brand and format. Central packing and production facilities, central functions, from its Bradford head office, and finally cultural change. WM Morrisons strategy, is to have strong national position with the combined store portfolio. In relation to WM Morrisons, and its plans the EU, legislations could affect, in its long term strategy, as it plan to expand its operations, to other EU nations. Besides, UK has shortfalls, certain, meat and food products, which is purchased from EU countries, by retailers, thus complimenting macro environment factors, in its service, and benefits. Demographic changes has boosted food to go sector, sale, thus creating, an added market in this sector. Technology, has infact, reduced, barriers to entry, and has complimented in the areas, that saw shortfalls. As WM Morrisons, finds integrating Safeway to its information technology, infrastructure, as part of its operation efficiencies, helping in smooth functioning of its mergers.
PEST analysis helps us to get into the macro environment setting, and measure its implications on the whole retail sector. Though it gives us general overview for a country, and is not company specific, yet, we can see, it is able to bring about better understanding of the scenario, of WM Morrisons, takeover bid of Safeway department store, and future implications that it has to look into, in the current market scenario.
As PEST, is for macro environment, five forces explore the industry itself, in the micro environmental category.
4 Porter's five forces model
According to Porter's theory (M Porter, 1980), there are five forces behind the industry competition: the rivalry among existing companies, the threat of new entrant, the bargain power of buyers and suppliers, and the threat from substitute. By analysing these, we are able to judge the profitability of the food retail sector, and know the competitive environment, in which food retail sector operate, and Morrisons bid on Safeway.
CHANGING SOCIAL
THREAT OF
SUBSTITUTES
-Switching costs are low
-Buyers inclination to
substitute impulsive purchases, tastes, and advocacy.
-Price-performance
CHANGING TECHNOLOGICAL
SUPPLIER POWER
-Supplier concentration
-Importance of volume to supplier
-Differentiation of inputs
-Impact of inputs on cost or differentiation
-Industry Customers are powerful
-Switching cost low
DEGREE OF RIVALRY
-Industry concentration is high
-Fixed costs/Value added is very high
-Industry growth is slow
-Intermittent overcapacity, overcomed by scale
-Product differences, on price and quality
-Switching costs is very low
-Brand identity helps to sustain rivalry.
-Diversity of rivals, products, prices, strategies, Tesco has gone global.
-Corporate stakes, are high.
BUYER POWER
-- Fragmented yet high.
- Price sensitive.
- Brand Aware.
CHANGING POLITICAL
THREATS FROM THE
NEW ENTRANT
-Absolute cost advantages
-Proprietary learning curve
-Access to inputs
-Government policy
-Economies of scale
-Capital requirements
-Brand identity
-Switching costs
-Access to distribution
-Expected retaliation
-Proprietary products
CHANGING ECONOMICS
Figure 2 Porters Five Forces.
(Researched data)
4.1 Degree of Rivalry
Food retail sector is relatively, mature market, and growth has been projected at 17% for the next three years, 2003- 2006. Competition amongst existing retailers is intense with the top six retailers having 70 % market share. (Mintel, 2002) Out of town development restrictions, on new site has seen pushing up, existing land and building costs The food retail is fundamentally homogeneous and easily switch able products, because stores on the high street can easily meets the supplies. The switching cost for the food products are low, thus making it a greater struggle to capture the market.
4.2 Threat of Substitutes
There is threat of substitutes from department stores, local shops, newsagents, as each compete for the share of the market. Other form of retail supplies can be substitutes, at the same time, bringing fore "Dashboard dining", with fewer people having time to spend time on cooking or eating, giving rise to takeaways habit, etc.
Non storage based shopping experiences similar to Argos which can distribute catalogues to homes and collect postal or telephonic or internet based orders can effectively drive away a certain percentage of audience from the departmental establishments like WM Morrisons. In this aspect Internet is definitely a big threat, which has already getting in majority of households.
4.3 Power of Buyers
Customers for food products are, in general, quite price sensitive. Although they have some extent of brand loyalty, generally customers for food products should be considered as having quite high elasticity of demand because the products are similar although it s the type of service that is offered that may vary. Therefore, bargaining power is relatively high. Buyer power may exist in isolation - where the selling power of retailers is limited by intense competition. This might be the case, for example, where retailing is highly fragmented on the selling side but coordinated (Through buyer groups) on the buying side. But often it might be that the buyer power of retailers is linked with their selling power, where one power reinforces the other, and thus the effects of one on the other and their combined influence on economic welfare takes on some importance.
4.4 Power of Suppliers
Bargaining power of the supplier has receded substantially, and it is the power of retailers that has grown, over the period. It goes down the period, when during 1970, grocery manufacturers used to exert strong market power over the retailers. By 2002-2003, top retailers accounted for more than 60% of grocery sales. Any one supplier is unimportant. With government in continual pressure to intervene in the pricing policies of retailers, and any new EU regulations in these areas, in the interest member countries, there could be some alteration in this situation in future.
4.5 Threats from the New Entrants
For the new entrants, the main barrier has been high initial investment cost, in land and building, technology required for Position of Sales (POS) scanning and stock control system. Usually, existing retailers, in purchasing and distribution, which a new entrant would not have immediate access to, gain economies of scale. Planning restrictions on out of town developments has become one of the main barriers, thus making new site availability very difficult and pushing up land and building costs. Thus high investment cost in the land and building and developing infrastructure, is a key barrier to entry in this sector. The learning curve favours the big players, due to continual development, in study of customer and competition, maturity gained by experiences, and relationships built in its value chain of buyers and suppliers, gives always a competitive edge.
4.6 Five force Analysis company perspective:
Porter's five forces, is very much focussed on the industry in general, while the strategy could vary from company, as per its competitive environment, going by the dynamic nature of the food retail sector, in the UK. The drawbacks of generalisation, is company specific strategies and issues are overlooked.
One can see the following industry analysis that is prevalent, that has been successful in this competitive environment.
i) Cooperation:
With-in the industry:
If there is an industry wide cooperation, between the retailers, as one sees in the mobile telephone market, in the areas of pricing and strategy, it acts as an entry barriers for new entrants. There has been voice of concerns in the pricing policies in regard to dealing with suppliers, due to the voice of unanimity of major retailers, against complaints of suppliers. Many feel, it could lead to similarity in promoting goods and services, in price, strategy, as one sees in mobile phone market, in the long run in dealing with consumers too. This shows cooperation could be a force to reckon, to sustain in the competitive environment, as there will be restrictions for new entrants.
With the suppliers, small shops, retailers:
Ethical considerations can see, suppliers, small shops, local shops, be part of greater industry value chain. Substitutes like small retailers and small shops could be part of the retail value system and as they may be purchaser from super markets to sell at their local store. Due to space constraints, high cost of land, could see small retailers part of industry value chain, be product and service enhancers. Suppliers too could be part of greater value chain, as they too are treated as beneficiary and not pressured in competitive pricing. By building bridge between them, there is much greater scope of cooperation, that can see acceleration in the industry growth, and also due to their local reach, low overheads in purchase and maintenance, staffing, economies of scale. Somerfield practises this strategy, as part of its social conscience and corporate social responsibility. Somerfield Supermarkets had announced on 14th March 2003, that it would be offering a free delivery service of groceries and fresh produce to village shops and small stores all over the country. It has been the first service of its kind and they plan to develop it substantially more developed than any schemes offered by other retailers, providing access to a huge range of fresh, frozen and ambient goods; free delivery, discounts and credit facilities. (Somerfield, 2003)
With Consumers:
With the advent of multinational, multilevel marketing companies like Amway International, Nutritional Products, Tupperware, etc, one is to one marketing, has come of age by now, showing again importance of advocacy in case of WM Morrisons, itself. Consumers decisions, is highly influenced, too by word of mouth promotions. Building upon greater consumer advocacy, is very much important in todays service industry, for its success and sustainaence. In case of Morrisons the advocacy level has been 54%, thus showing Morrisons brand loyalty. (Shaun Smith 2003) Consumers have indeed become more demanding of retailers and are increasingly looking for authority of product offer. This has forced the food retailers, to pursue in understanding their target market, its needs and aspirations, because any shortcomings in their offers to customers will be punished as customers switch to competitors comments (Richard Perks, 2003)
ii) In respect to Technology:
Point of Sale:
With the advent of hypermarket, C-Market, the use of technology in the market place which will be deciding factor to influence and initiate processes of sale in the retail sector, which is not considered in the five forces. In fact as mentioned earlier, technological factor helps in reducing the barriers to entry in the industry.
Decision Making:
One of the key factors the advent of technology has brought, and industry will face, is impulsive buying decisions. These decisions could be quick and instinctive and not market influenced by any market forces. Consumers may decide to buy something for change, and when purchases are influenced through advocating their preferences and tastes, sees this area of influence on the percentage of sales too very much of importance for an industry to understand the consumer buying decisions.
iii) Location Aspect:
Location aspect too could be a factor in industry pricing, as WM Morrisons, is located in the outskirts of city. The cost of transport for suppliers could be low, but for consumers could be a hindrance, to receive these benefits due to travelling. While on the contrary, for suppliers, to supply to other majors in the city could be a problem, but for consumers it could be a benefit. Thus we see an industry could be influence by building up of values, cooperation, ethical considerations, and loyalty.
Hence we see that five forces indeed is good for industry analysis, but it can vary from company to company. 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. Accordingly, the companies such as Morrisons and Tesco which are growing rapidly, succeed to reduce their costs and it is deduced that the cost leadership strategy is working well. For Morrisons, low pricing strategy is its competitive advantage, due to its economies of scale, locations, which gives them competitive edge in pricing and have cost leadership. With its merger with Safeway, it can bring its brand value, operating economies, to local, regional and national scale.
"Sir Kenneth Morrison, justifies this ,..... they are keen to extend their 'least cost, best value' approach countrywide, enhancing local competition.... A combination of Morrisons with Safeway will create a fourth national food retailer capable of offering a value-based retail challenge to Safeway's three larger national competitors. The merged business will be able to benefit in the economies of scale available to the 'big three', through the operation of strong national and local competition and our long-established value-based pricing policy, will mean lower prices for customers." (Morrisons report,2003)
5.3 Differentiation
Broad differentiation, which seeks to be unique in terms of dimensions widely, valued by buyers, and which is also different from competitors.(Gerry Johnson and Kevan Scholes, 1998) Within the retail store market, the differentiation strategy seems to be unlikely to exist as products are relative homogeneous instinctively. 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.
Innovative marketing concepts and services, has been key factor that has helped food retail sector, to gain foothold in the market Morrisons, has 102 of its sites providing, petrol filling stations, 110 have cafeteria serving and hot meals. Tesco has tied up in financial services, has forays in telecom, and has plans to sell high fashion products at low prices, shows that grocery retail, will not be specified as food retail in long run, with all the convenience services being made available on the shelf. The long-term trend, according to Retail Intelligence, will be a polarisation between superstores and convenience stores. Thus we can see food retail industry has been trying to attain competitive advantage apart from the perceived added value as mentioned in Bowman's clock theory. Market savvy strategies, have been helping them gain foothold in new areas, and compensate the low margins, in the food and grocery products.
6 Conclusions
The competitive strategy of an organization is crucial to obtain and sustain the competitive advantage in order to achieve its organizational objectives. To develop appropriate strategy, it is necessary to analyse the external environment and internal resources. The external analysing involves the assess of the industry in which the company operating and general environment such as politic, economic, social, technological (PEST) factors; then identify and select the strategy in terms of corporate, business and operation levels; finally, the management should ensure the strategy is successful implemented, and evaluate the change of the internal and external factors to manage the strategic changes.
There are many models and theories to help the manager to develop a suitable strategy of the organization. This article is an attempt to analyse the strategy of WM Morrisons takeover bid of Safeway, and its future growth plans. It can be concluded that using the strategy models and frameworks is important to analyse the competitive environment and develop the competitive strategy. However managers should be aware that the economic and strategic theories have some limitations can be un-suitable to develop or analyse the strategy. In conclusion, UK food retail operates on low profit margins, in order to stimulate sales, and thereby increase the total amount of profit generated. (Eddie Maclaney and Peter Atrill, 1999) The food retail business is highly competitive, and obsessively focussed on the price. As the margins are very low, only big firms can sustain in this environment. (bbc.co.uk, 2003)
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8. Appendix
Summary:
The food retail sector is one of the fastest growing industries in UK, with top six super markets controlling seventy percent of the market. It has also seen fiercest competition, and price war, in recent years. W M Morrisons, announcement of takeover of Safeway, in January 2003, close to follow them on Safeway bid was, competitors, like Tesco, ASDA, Philip Green of BHS, too announced their bids for Safeway. What is the competitiveness of this highly concentrated market? What is at stake, in the heart of bid of Safeway? This report will look into four important angles of the food retail industry, in the perspective of WM Morrisons take over bid of Safeway. These comprise: how PEST changes in the market might affect over the next few years, the nature of competition in the market and finally how competitive advantage is sought; an Industry analysis; a customer analysis.
Brief Introduction:
The strategy in management plays a crucial role in the development of an organization. Strategic decisions, in an organisation, are likely to be concerned with scope of an organisation's activities, matching its activities to resource capabilities, environment, values and expectations. As the businesses and market become more polarised, the companies strive to be competitively superior to stay ahead of its race, and attain competitive advantage. There is a need to develop a business strategy, to gain and sustain the competitive advantage in order to achieve organizational objectives and goals. Strategies of business are varying from different organization. Some companies develop unique products or services to meet their customers' needs, while others may offer the consumer the low-cost products in order to obtain larger market share.(Johnson and Scholes, 1989)
One of the most watched industries in the recent years for its vibrant character, and competitiveness has been UK food retail sector. The top six food retailers, controls seventy percent of the market. It has not only seen fiercest competition, but also has seen price war and a combination of frugality and market savvy attributes. Food retail industry, has come in news, in prominence this time, when on January 9th 2003, WM Morrisions, announced its bid to take over, Safeway, department stores. (bbc, 2003)
Theories of PEST Analysis
Economic
Increased out of town locations means change in customers, as there is need of vehicle to reach there. Land-use planning has seen, out of town development restrictions, on new site, which has seen pushing of existing land and building costs. The impact on town centres and small shops of large out-of-town shopping facilities.
The pressure of economic slow down has seen companies work on high volumes and low margins, and cost of groceries are sold below rate of inflation in real sense 9.4%. (dur.ac.uk, 2003)
Social:
Major demographic changes, change in strategy and approach, in the food retail sector, is seen focusing on added-value products such as the booming 'food-to-go' sector, premium products, on increasing own-label's share of the their business mix, and on supply chain and other operational improvements to drive costs out of the business.(Dti.gov.uk, 2003). Due to fragmentation and polarization including alienation, consumers have become less tolerant and more demanding of retailers and locations.
Technological:
Retail industry is a major user of new technology. Technological factors, helps to can bring down lowering of barriers to entry, and can reduce minimum efficient level.
Benefits to the consumer in future will be, less of waiting time, quicker shopping, online shopping. Lay out of stores designed, will be to optimise sales. There could be quicker building time for stores Asda took 32 weeks to be built. Technology to predict consumer or individual buying behaviour.
Theories of Five Forces Analysis
Degree of Rivalry:
Glaister (1995) noted that the extent of rivalry is a function of numerous factors including: the number of competitors and their relative size; the rate of industry growth; the degree of product differentiation; and the height of exit barriers.
Threat of Substitute:
The substitutes of product or service are alternative ways of meeting buyer needs (Bowman and Asch, 1996).
Power of Buyers:
Consumer to food retail has great leverage in decision making, as they are very much price sensitive. Also they have decision making power, going by the consumer recommendations and advocacy in relation to WM Morrisons.
Threat of New Entrants:
The threat of new entrant will depend on the extent to which, there is barriers to entry, which can be economies of scale, capital requirements, and access to distribution channels, cost advantages, legislations, and differentiation. (Johnson and Scholes 1989)
6 Building a Consumer Advocacy Strategy
What Morrisons has to build is a relationship marketing; They should look for customer retention as much as finding new customers.
This process can be summed up by the following diagram:
Figure 4 Relationship Marketing.
(Cornerstones of relationship marketing, Hooley et al. 1993,98)
Morrisons provides 'sound reasons' for a customer relationship: a cost leader and good quality service. As such, Morrisons should be able to obtain customer feedback about the service they provide, and go on improving it. The marketing communication techniques that Morrisons put to use, must operate in a very personable and candid manner
On the basis of the current success of the company, one could assume that the service offering is a good one. Of those factors included within it, cost leadership is thought to be the most important. Cost leadership is often a very effective form of competitive strategy. It is certainly very effective in the European market, where the customer demand , are still on average twice as much as in the US. (Competitive advantage M. E. Porter 1985).
6.1 Motivations to buy
Motivation can be either in a positive or a negative form. Negative motivation is where a person is trying to solve a problem that they face. Whereas positive motivation is concerned with making things better and adding value to something. People are motivated either by push or pull factors. Push factors such as basic instincts drive people toward their goals, i.e. you have to eat if you are hungry. Pull factors are concerned with the attraction of goods, persons, situations and behaviours. In the case of Morrisons its seems likely that customers are pushed to meet there wants and needs. They are attracted to its brands they are pushed in finding some means of travel. (Antonides and Raaij,2002).
It seems reasonable to assume, that for the most part people are not attracted to the idea of shopping (in the same super markets), it merely fulfils a need to get from A to B. Therefore, two of the major factors affecting the choice of its brand, are the value that brand able to provide, as compared to other brands or retails, that combined with Morrisons can create customer pull factors. The combination of Morrisons brand with Safeway locations for example, makes new company more attractive vis-à-vis other food retailers since customers are able to but their value products, at a very reasonable price and reach. Morrisons can feasibly segment its market in many different ways (e.g. by age, type of customer, how often they buy, which products they take etc.), however their overall marketing strategy is one of mass marketing.
Competitive advantage:
i. That the opportunity offered is most valuable to them. They must be the best placed supplier for that product group, that they have the best ability to produce and make profit from the opportunity relative to any other potential suppliers. This is their protection from the price threat under normal competition.
ii. That the industry structure is favourable. That rivalry is not such that profit will be eroded.
iii. That the costs of entry do not absorb the whole of the future profitability when the cash flow is discounted.
Achieving the strategic position the retailer wants is not too costly for the manufacturer.
It seems reasonable to assume, that for the most part people are not attracted to the idea of shopping (in the same super markets), it merely fulfils a need to get from A to B. Therefore, two of the major factors affecting the choice of its brand, are the value that brand able to provide, as compared to other brands or retails, that combined with Morrisons can create customer pull factors. The combination of Morrisons brand with Safeway locations for example, makes new company more attractive vis-à-vis other food retailers since customers are able to but their value products, at a very reasonable price and reach. Morrisons can feasibly segment its market in many different ways (e.g. by age, type of customer, how often they buy, which products they take etc.), however their overall marketing strategy is one of mass marketing.
Morrisons Strategy:(Morrisons ,2003)
Our plans for Safeway stores
Greatest opportunity is to raise the performance of the larger Safeway
stores to Morrisons levels
* In stores above 25,000 sq. ft., Morrisons sells 25% more per sq. ft. than Safeway1...
* and its average basket size is 48% higher than Safeway's1
* In stores between 15,000-25,000 sq. ft. a 10% uplift in sales is targeted
By introducing Morrisons successful customer offering
* High quality products at consistently low prices - "the very best for less"
* Strong fresh food proposition including the in-store "Market Street"
* A consistent national promotional programme
- 1,000 specials at any one time, including approximately 150 BOGOFs2
- offers on products which customers really want to buy
- on-going 4-weekly programmes
Backed by our national pricing policy
* Independent surveys show that Morrisons prices are between 4 and 13 per cent.
* cheaper than Safeway3
* Stores retaining Safeway brand to maintain a convenience store format and price structure
Clear implementation plans
The integration of Safeway involves 5 major tasks
Task 1: Conversion of Regional Distribution Centres
* Priority: getting Morrisons product range into Safeway stores
* Warehousing and distribution networks adapted to handle Morrisons
product range
Task 2: Store conversion and refurbishment
* 358 Safeway stores above 15,000 sq. ft. converted to Morrisons brand
and format
* Store conversion carried out region by region and will follow distribution conversion
Task 3: Central packing and production facilities
* Our approach to vertical integration underpins our "least cost / best value" approach
* Existing facilities expanded by investing in new processing and packing capacity
Task 4: Central functions
* The Enlarged Group's head office will be based in Bradford
* Central functions of the two groups will be combined, notably buying departments and IT infrastructure
Task 5: Cultural change
* We are grocers at heart - selling good food at lower prices
* We will effect cultural change throughout Safeway's organisation, adopting
Morrisons philosophy of least cost / best value
The Enlarged Group will provide a strong and competitive alternative to the other national grocery retail chains. The Enlarged Group will enjoy:
- a strong national position for the combined store portfolio;
- two distinctive formats, combining Morrisons' successful retail franchise with Safeway's smaller store expertise;
- a strong infrastructure, particularly in supply chain management, encompassing warehousing, distribution and IT; and
- powerful synergies, comprising significant cost savings from increased scale and trading benefits from the introduction of the full Morrisons offering into the larger Safeway stores on a consistent national pricing policy.
Strong national position
On completion of the Merger, the Enlarged Group will operate 598 stores with an aggregate selling area in excess of 14 million square feet. It will have sales of over £12.6 billion and a national food retail market share (based on total till roll in Great Britain) of 16.1 per cent. The locations of the Morrisons and Safeway stores are highly complementary, with few local overlaps, and Morrisons' geographic strengths in the Midlands and the North of England will be added to Safeway's strong positions in Scotland and Southern England.
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`.
