Discount chains affecting profits of major supermarkets
Discuss about the Case Study Analysis of Britain.
The major issues that are present in the supermarkets of Britain is that the price of the products are being reduced to a great extent due to the rise in a large number of discounts. Supermarket such as Aldi and Lidl are increasing their profits by offering a large amount of discounts to the customers for purchasing the products. Some of the experts are of the view that the rise of these companies has allowed them to take control over 20 percent of the shares that were present under Asda and Sainsbury (Heasman and Lang 2015). The major impact on these stores is that they are losing out on their sales and have been forced to offer discounts on daily items such as bread and milk. This has affected their ability to increase their profits in the market and as a result is facing stiff competition from the new supermarkets that are paving their way in to the market (Fernie and Sparks 2014).
There has been a rise in the number of discounted chains in the market of United Kingdom, which has affected the sales of the supermarkets. The discount chains are expanding on a rapid manner due to the increased rate of profitability, which has been causing trouble to the supermarket chains that are present in the country (Ferniew, Pfab and Moore 2013).
There has been an increase in the shopping lists of the customers on a weekly basis, which has been helping the local shops that are smaller in nature. Shopping frequently but at a little amount has been increasing among the customers, as they are looking for the stores that are situated closer to their place. This is due to the fact that most of the customers wants to drive less and are of the thought that they want to reduce the wastage of food products (Ellickson 2016). There has been an increase in the shops near the small neighborhood so that the sales can be increased to a great extent. The opening up of the stores in the high streets by the supermarket chains will help in boosting up their sales, as it will tempt the shoppers in buying the fresh produce and not the ones that are distributed from the mills. The shift of the supermarkets in the high streets will help in the opening of the shopping parks, which will help in attracting a large number of visitors as well. It will also allow the new sites to be turned in to shopping malls, which will help in boosting the economy of the place (Seaton and Waterson 2013).
Shift of major supermarkets to high streets
The shift to the high streets has helped Tesco in increasing its sales revenue to around 23.2 percent, which is almost double the amount from its rival that is Asda. The company has around 165 new sites under them and has got the permission to plan their stores in almost 60 of the sites (Heasman and Lang 2015).
The issues with the supermarkets are the competition that they are facing from the other small stores that are offering discounted price to the customers for the products that are being bought from those stores. The discounts are also being given on daily products as well. This has led to the fall in the profits of the major supermarkets that are in operation in the UK market. this has led the supermarkets to built their shops in the high streets so that it can help the customers by making it convenient for them to purchase the products from the nearby locations. It will also result in less travelling by the customers that will help in increasing the chances of the stores to attract the customers towards them (Sparks 2014).
The supermarkets are operating under the retailing industry, which is also facing stiff competition due to the other stores that are present and the discounts that they are offering the customers. This has resulted in providing competition to the supermarkets that are already present in the UK market, as their sales are dropping to great extent that is affecting their level of profits as well (Balta-Ozkan, Boteler and Amerighi 2014).
The market in which they are operating is highly competitive, as there are many supermarkets that are operating within the industry. This has resulted in increasing the satisfaction of the customers in an overall manner so that it can help in attracting them towards the stores (Braun, Altan and Beck 2014).
The Five Forces analysis of Porter helps in analyzing the factors that are present within the industry in an external manner, which influences the competition within the industry.
The supermarkets have the power to change the regulations that are present within the industry. They are the major players within the industry and the entire chain of supply for the products is managed by them. Most of the suppliers are at the managerial levels that help them in demanding a certain price from the retailers so that the goods can be supplied to them. The retailers need to pay the price failing which may lead to no supply of the goods to their stores. Therefore it can be stated that the power of the suppliers is very high in the grocery industry (Lambie-Mumford and Dowler 2014).
Rise of small neighborhood shops
The buyers also have a higher power of bargaining in the UK market, as they are sensitive to the changes in the prices that are being made in the grocery industry. Most of the customers are attracted to the stores that will be offering them the products at a cheaper price so that it can help them in increasing the volume of purchases at a particular budget. The cost of switching to a different company is also very low for the customers, which helps them in changing the brands once the cost increases. Thus it can be stated that the bargaining power of the buyers are very high in the market, as they tend to influence the market by switching over to a new brand if the price of the particular product increases (Beske, Land and Seuring 2014).
The retail industry within the UK market is subjected to many rivalries and the threats that they are facing from the other supermarkets that want to gain entry in to the market. The rivalry in the pricing of the products has led to the level of competition to increase in the market. This has made it very difficult for the retailers to become strong players in the market, as their survival in the market has also become difficult. The investment in entering the markets by the new companies is huge, as they need a strong financial position so that they can be able to attract the customers by providing the prices at an attractive price. Therefore it can be stated that the companies who are trying to enter the UK market in a new manner has a low power due to the strong financial positions that they require in competing against the existing companies (Hattersley, Isaacs and Burch 2013).
The supermarkets offer a wide variety of products to the customers, which help in satisfying all their needs and demands. This has resulted in increasing the switch of the customers to different brands who are offering better quality at a cheaper price so that they can reduce the amount that is spent on a particular product. The customers do not stick to a particular brand for a long period of time, as they increase in the price of the products may lead them to switch over to some other products that are offering the same benefits. Thus the threat of substitutes is high in the supermarket industry (Braun, Altan and Beck 2014).
Porter’s Five Forces analysis of the industry
The rivalry among the competitors is very high in the retail market, as they want to attract the customers towards them for increasing the revenues. The grocery industries use most of the latest technologies such as e-retailing so that it can help them in satisfying the customers by delivering the products to their doorsteps. The transactions that are done online and the intense advertisements that are done by the companies help them in satisfying the wants and demands of the customers so that they can be loyal towards the company. Thus the level of rivalry among the competitors is very high in the market (Neske, Land and Seuring 2014).
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Strengths 1. Provides discounts to the customers 2. Large stores that offer all range of products 3. Includes private brands, which increases brand equity |
Weakness 1. Not present in major locations 2. Controversies leading to negative coverage by media 3. Mostly in debts that is affecting profits |
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Opportunities 1. Needs to increase sales of non-food products 2. Increase sale of private brands 3. Open stores in major locations |
Threats 1. Increased cost of raw materials hampering profits 2. Competition from smaller stores 3. Low operating cost, which affects profit |
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Political 1. Needs to maintain quality according to the Food Standards Agency and General Food Law 2. Needs to follow food Hygiene Regulations and Hazard analysis Critical Control Point (HACCP) 3. Environmental law needs to be followed so that pollution can be controlled |
Economic 1. Rate of taxes need to be followed so that the product prices are not increased 2. Competition in price leads to increased expenditure by the consumers 3. Rate of foreign exchange also affects the food prices, which needs to be checked so that it can help in supplying products in a stable manner |
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Social 1. Increase in old age and retired people, as they consume less 2. Online shopping preferred, as it is easy for them 3. Ready meals are available that makes it easy for the consumers to prepare |
Technological 1. Online shopping is being provided 2. Catalogues are present on the portal, which helps in comparing the prices by the consumers 3. Use of advanced software so that operational cost can be saved |
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Inbound logistics |
Operations |
Outbound logistics |
Marketing and sales |
Service |
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1) Complex and involves various supplies 2) Increased investment so that economies of scale can be subjugated 3)Unnecessary use of supply chains need to be identified |
1) Retail sector needs to operate in metros and superstore 2)Manufacture the products so that value can be present in the private labels as well 3) Banks need to be considered so that financial activities can be understood properly |
1) Cost-effective methods of delivery needs to be taken in to account 2) Home deliveries need to be encouraged 3) Online grocery stores need to be opened |
1) Competition in prices will help in increasing sales 2) Trust from stakeholders needs to be present so that it can help in increasing sales 3) Online and offline sales channel needs to be encouraged |
1) Loyalty of customers needs to be given priority 2) Cost leadership strategies need to be taken up so that market penetration can increase |
Market penetration- Penetrating the market needs to be done by the supermarkets so that it can help them in gaining a upper hand within the British market. They need to decrease the prices so that it can help in attracting the customers who are living in the high streets.
Product development- The supermarkets need to provide their own brands so that it can be available to the customers at a cheaper price.
Market development- Pricing of the products need to be done in such a manner so that it can help in getting the other customer segments as well.
Diversification- Apart from food products, the supermarkets need to provide electrical goods to the consumers as well so that they can meet their demands from the same store.
Cost leadership- The supermarkets need to give the products at a competitive price in the high street locations.
Differentiation- Different products need to be provided to the customers so that they can get a wide variety of options to choose.
Cost focus- This will help in increasing the rate of profit for the supermarkets by attracting more number of customers.
Differentiation Focus- The different products that will be supplied by the supermarkets needs to be unique in its characteristics so that it can add value for the company.
Conclusion
Thus it can be concluded from the case study that the major players in the supermarket industry needs to identify various strategies that will help them in gaining a competitive advantage over the new firms that are entering in to the markets. The opening up of the stores in the high street in the UK will help them in attracting the customers so that it can help in increasing the revenues as well. The Five Forces analysis shows that the rivalry is very strong in the market, which needs to be tackled in a strategical manner. The adoption of the new strategies will help the present companies in providing stiff resistance to the new companies that are present in the market.
Reference List
Balta-Ozkan, N., Boteler, B. and Amerighi, O., 2014. European smart home market development: Public views on technical and economic aspects across the United Kingdom, Germany and Italy. Energy Research & Social Science, 3, pp.65-77.
Beske, P., Land, A. and Seuring, S., 2014. Sustainable supply chain management practices and dynamic capabilities in the food industry: A critical analysis of the literature. International Journal of Production Economics, 152, pp.131-143.
Braun, M.R., Altan, H. and Beck, S.B.M., 2014. Using regression analysis to predict the future energy consumption of a supermarket in the UK. Applied Energy, 130, pp.305-313.
Ellickson, P.B., 2016. 15 the evolution of the supermarket industry: from a&P to Walmart1. Handbook on the Economics of Retailing and Distribution, p.368.
Fernie, J. and Sparks, L., 2014. Logistics and retail management: emerging issues and new challenges in the retail supply chain. Kogan page publishers.
Fernie, J., Fernie, S. and Moore, C., 2013. Principles of retailing. Routledge.
Fernie, J., Pfab, F. and Marchant, C., 2013. Retail grocery logistics in the UK. The International Journal of Logistics Management.
Hattersley, L., Isaacs, B. and Burch, D., 2013. Supermarket power, own-labels, and manufacturer counterstrategies: international relations of cooperation and competition in the fruit canning industry. Agriculture and human values, 30(2), pp.225-233.
Heasman, M. and Lang, T., 2015. Food wars: the global battle for mouths, minds and markets. Routledge.
Lambie-Mumford, H. and Dowler, E., 2014. Rising use of “food aid” in the United Kingdom. British Food Journal, 116(9), pp.1418-1425.
Seaton, J.S. and Waterson, M., 2013. Identifying and characterising price leadership in British supermarkets. International Journal of Industrial Organization, 31(5), pp.392-403.
Sparks, L., 2014. The rise and fall of mass marketing? Food retailing in Great Britain since 1960. In The Rise and Fall of Mass Marketing (RLE Marketing) (pp. 74-108). Routledge.
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