What is strategy. Why do strategies are important for organisations. Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations. (Johnson, Whittington and Scholes, 2008).
Retailing industry is highly competitive market in the United Kingdom; supermarkets are still fast growing industry across the nationwide. This paper relates to strategic analysis of Morrisons, the company become challenger for major national and global competitors since took over Safeway, good strategy lead to success and grow the business.
Introduction
WM Morrison supermarkets Plc was founded in 1899 and headquartered in Bradford, it is the 4th largest supermarket in the UK after takeover Safeway in 2004. Morrisons mainly focus on food and grocery products (Morrison’s history, 2013). The company offer the high quality of customer service by well trained staff to attract more customers to shop in Morrisons. HOT service has introduced to colleagues in all stores. Motivate staff work as a team; support each other to achieve goals. The purpose of this essay is critically access strategic improvement of the Morrisons by using analytic modules including potters five force, SWOT, Ansoff’s matrix model and generic competitive strategies. Compare with Tesco and Sainsbury’s to help Morrisons continue improvement, shrink the distance with competitors.
Morrisons’ Current Corporate Strategy
Driving the topline: strengthening the brand image, crate leading range and offer high quality produce. Offer customers the best fresh food in the UK; provide great value and experiential engage shopping environment. Build new stores help customers easy to access.
Increasing efficiency: introduce new solution for Morrisons’ five manufacturing produce sites to improve efficiency. Increasing network efficiency by reducing costs throughout supply chain.
Capturing growth: “create different things by leveraging its vertical integration and fresh, also value credentials to develop a really distinctive and compelling fresh food experience, offering customers great food at affordable prices at a location which is convenient for them” (Morrisons’ annual report, 2012).
Strategic analysis: Porter’s Five Forces Model
By applying porter’s five forces to conduct a situation reviews to advice Morrisons Plc., analyse the current marketing environment for the company; identify and analyse forces that affect an industry.
Rivalry: the UK’s retail market is oligopoly; this industry has high competition, “big 4” have already occupied most markets across the country, including Tesco, Sainsbury’s, ASDA (America owner Wal-Mart), Sainsbury’s and Morrisons. Tesco is market leader, which has 30.7% market share, followed by ASDA with 17.6%, Sainsbury’s held share at 16.6%, Morrisons at the 4th position with 11.9% market share (The Guardian, 2012). Tesco and ASDA have almost 50% market share due to their sizes; both of them are international companies who have business worldwide. The threat of rivalries is high.
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Threat of New Entry: global competitors have penetrated into the UK retail market, ASDA owned by Americans. German giant Lidl has opened many stores in many UK cities. However, Lidl only shared 2% market; the threat is low at the moment. On the other hand, there are also internal competitions, cooperative plans expand their business by open more shops to gain market share, and Waitrose do so. The threats of new entrenchers are high for Morrisons.
Buyer power: customers will compare the prices with other supermarkets chains, easy to switch, buyers always look for value. Morrisons has price strategy to keep the price down and satisfy customers, hundreds of products offered great deals, such as special offer, buy one get one free, half price and reduce to clear. In this case, buyer power is medium.
Substitution: nowadays, individual and franchised groceries could be challengers, such as londis, budgens; it is convenience for local buyers. The company’s own brand products to be able to substitute other brands of items, due to the cheaper price, many products have low quality. For instance, Morrisons has replaced pork sausage rolls from its own built factories, the size has been shrink and the taste is not satisfied consumers, even remain the same selling price. Substitute level is medium.
Supplier power: Morrisons have own manufacturing factories and farms, which can help to reduce the power of suppliers. By build great relationship with suppliers to ensure the costs lower. However, this threat is low.
SWOT analysis
SWOT summarise the key issues arising from an analysis of the business environment and the capabilities of an organisation to gain an overall picture of its strategic position. (Johnson, Whittington and Scholes, 2011).
Strengths: Morrisons is a very different with other supermarkets in the UK, because of fresh food. It has own fresh produce distribution centres with fast delivery. Focus on customer service is other strength; the company introduced ‘HOT’ to all members of staff, it means “Hello, Offer, Thank you.” The purpose of this service is build closer relationship between colleagues and customers, to achieve higher quality of customer service in communication, a warm, natural and friendly services to help customers feel that they are important for Morrisons, like a member of family. The visiting numbers has been steady increased compared with past 4 years. Many buyers chose Morrisons regard to their price strategy, by offer cheaper prices than any others.
Weakness: as the 4th biggest supermarket, it does not provide online shopping system, other large retailers have already benefited from their online websites, and this is also
Convenience for consumers. All Morrisons’ branches built on large size or super stores, in addition, many stores located in remote areas. It is difficult for buyer’s access to them.
Morrisons lacks of non-food products, such as electronics, clothes. Buyers will have alternative choices shopping in rival supermarkets.
Opportunities: Morrisons should focus on non-food products, provide variety products. This is the great opportunity to develop electronics and clothes, it will help the company to expand the business, introduce new products for consumers.
The first Morrisons local convenience store was opened in IIKley, Yorkshire in 2011. The M local strongly focus on fresh food with competitive price, it will be 4%-11% cheaper than other local shops such as Tesco express and Sainsbury’s local (Morrisons, 2012). The new strategy will build smaller local stores to increase market share.
Threats: Morrisons should concern with environmental protection, due to many packing products produced which generate extra landfilling waste. Increasing numbers of rival retailers, such as Tesco express and Sainsbury’s local.
Positions of competitive advantage
Competitive advantage
Lower cost Differentiation
1. Cost leadership
2. Differentiation
3A. Cost focus
3B. Differentiation focus
Broad Target
Competitive
Scope
Niche
Adopted from Porter (1985).
Cost leadership: low cost producer in an industry for a given level of quality, the company sells its products at average market prices to earn a higher profit than competitors, or cheaper than the average industry prices to increase the market share. Morrisons has built their own manufacturing factories, save the costs. 12 distribution centres supplies to supermarkets directly and using its own transport lorries which works around the clock to deliver the freshest food to stores. Employing 2,700 people, Morrisons’ produce sites produce 29 million packs of fresh fruit and vegetables every week for sale in all stores. For Morrison to compete on cost bases then it must address issues about overheads, materials, labour, and other relevant costs, and design a system that reduces the cost per unit of its product or service before entering the global markets. Often, the lowering of costs requires extra investments in automated facilities, equipments and employees skill.
Differentiation: develop a product or service which offers uniqueness that are valued by customers, either perceive to be better or different from the products of the competition. The company differentiates itself from the competitors through its actually marked products, concept the market-strit, for example, the kernel of its competitive advantage is in its ability to provide a privilege of cost for its clients.
Focus: concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation (Porter, 1998). Morrisons as a whole could not be considered as the player of a focus strategy because it has resources and abilities to compete on wide basis.
Overall, by applying Porter’s generic competitive strategies to Morrisons, Cost Leadership strategy is appropriate.
Ansoff’s matrix model
Market penetration
Product Development
Market Development
diversification
Existing products New products
Existing
Markets
New
Markets
Adapted from Ansoff (1957)
Ansoff’s matrix is a decision making tool for corporate planning and provide a useful framework for analysing a range of strategic options in relation to risks and rewards. The model consists with four models, market penetration, product development, market development and diversification.
Market penetration
This option is promoting growth in existing markets with existing products. According to Mercer (1996), “the growth strategy inherent in the market penetration is for an organisation seeking to maintain or increase market share of its existing products within the market place, gain market leadership, change competitive processes within a matured market, or increase awareness amongst existing consumers.” Market penetration reduces the risk, because the company already know the market and do not need to invest in research and development or advertising strategy into a new market in order to raise brand awareness.
Morrisons plans to open 25 stores in 2012 and create more than 7,000 new jobs for business expansion, around 300 people employed at new Bridgwater Regional Distribution Centre, which provide food for much of the South West and South Wales.( Morrisons Media centre, 2011). On the other hand, acquisition and merger by taking competitors is the another option to grow business and increase market share. Morrisons acquires blockbuster stores for expansion, the company has announced the purchase of 49 Blockbuster stores, 1000 jobs would be created, and these shops reopen as convenience stores. (Morrisons Media centre, 2013). The retailer expects open at least 70 Morrisons M local in 2013, it has begins to accelerate expansion and compete with Tesco, Sainsbury’s and ASDA.
Market development
The strategy aims to develop new markets by using existing products; Ansoff (1984) stated that market development would be attracting a new customer segment, using a different strategy into consuming an existing product. Market development is more risky than market penetration due to unfamiliar with new areas.
In this strategy, Morrisons could be invest in new markets such as Asia, Europe and America, expand business globally, research selected countries and build up relationships with local retailers, ensure the supply chain will on demand.
Product development
Product development involves in new products into existing markets, offer various product range in order to maintain a competitive position. The option concern with high risk, because of research investment would increase the costs.
Morrisons online shopping system almost 0, the retailer should consider online business, offer food and products through the internet which can save consumers’ time. Build or contract a distribution network of vehicles and staff to do food and grocery home delivery.
Diversification
Develop new products in new markets is diversification. This is a high risk strategy due to outside the core competencies of the company. The organisations choose the diversification because existing products and markets have limitation on profit.
Morrisons should offer wide range of products which target customers who have different needs; the retailer may focus on electronic products or clothing, build extensions to its stores to create additional space for the non-food product range.
Compare with Tesco and Sainsbury’s
Resources
Tesco Plc is the number one supermarket chain in the UK, with more than 3,000 stores and over 300,000 employees, 60% sales and profits from the UK business. (Tesco, 2013). The retailer has variety formations, include Tesco Extra, Tesco Metro, Tesco Express, One Stop, Tesco Homeplus and Tesco superstore. Tesco operates internationally in Europe, Asia and North America.
Tesco offers food products, non-food retail petrol stations and home living range. Personal financial services including several of insurances, personal loans, secure investment bonds, savings accounts and online mortgage finder. The retailer sells over 40,000 products; including own-label products at three levels, value, normal and finest which are contribute 50% of sales.
Sainsbury’s was established in 1869, over 1,000 stores and 440 convenience stores, more than 150,000 staff. The long-term strategy is to be the most trusted retailer where people love to work and shop. (Sainsbury’s website, 2013).
There are over 490 Morrisons stores countrywide. Consider the number of stores, the retailer only the half size of Sainsbury’s; it has great difficulty to compete and challenge Tesco.
Core Competencies
Pralahad and Hamel (1990) defined competencies as “the collective learning of the organisation, especially how to coordinate different production skills and integrate multiple streams of technologies”. Core competencies are the skills for organization and unique tool, the company’s competitive advantage and development for the future.
Tesco is the 3rd largest supermarket chain of the world with secured market position in the international market, the retailer not only focuses on the UK, but also expands business overseas, and the brand image is powerful. In 2008, Tesco was the winner of the retailer of the year at World Retail Awards. This giant retailer offers wide range of products, including non-food items, such as books, clothing, electronics, insurance and furniture. Consumers have variable choices in Tesco. Tesco has the largest online grocery shopping service in the world; it is the fourth biggest online retailer in the UK, behind Amazon, Dell and Argos. (Datamonitor, 2010). Online shopping provide convenient options to meet customers need and help them make lives easier, shop anywhere, anytime, quick and efficient.
To attractive more customers and become regular shoppers, Tesco has introduced Club card, a customer focused strategy, reward scheme allows Tesco to collect, analyse and understand customers’ needs. The club card gave customers a distinctive capability of observing customers preferences, enabling them to predict customers shopping habit and placing their stocks accordingly in stores provide an edge over competitors.
Over 50% Brand Match coupons show that Sainsbury’s is cheaper than rivals, such as ASDA and Tesco, 125 branded suppliers and 650 campaigns participating in coupon-at-till. Sainsbury’s nectar card is the UK’s largest loyalty scheme over 18.5 million members, almost £200 million of points redeemed over the year. (Sainsbury’s annual report, 2012). The convenience stores earn revenues exceed £1 billion, Sainsbury’s won supermarket of the year and best convenience retailer at Retail Industry Awards in 2011.
By contrast, Morrions’ promotional strategy is offer voucher when customers spend certain amount will have money off discount on a full grocery shop. Convenience store plans have just started which is behind Tesco and Sainsbury’s, and it is the long way to go. The company’s online system is inconvenience; consumers cannot order and deliver by internet.
Financial analysis
In this part, Morrsions will compare and contrast the financial performance and position with Tesco and Sainsbury; the data collect focus on year 2010-2012, analysis and evaluate which retailer has better performance.
Tesco PLC
Income statement (£ m)
2012
2011
2010
Revenue
64539
60455
56910
Operating profit/loss
3985
3917
3457
Profit before tax
3835
3641
3176
Net income
2806
2655
2327
Total assets
50781
47206
46023
(Source: London Stock Exchange)
Tesco revenues are up year on year grow strongly, operating profit slightly increase in 1.7% in year 2012. Net incomes steady grow from 2010 to 2012, but total assets growth lower than net income during year 2011.
Morrisons (WM) supermarkets PLC
Income statement (£ m)
2012
2011
2010
Revenue
17663
16479
15410
Operating profit/loss
973
904
907
Profit before tax
947
632
598
Net income
690
632
598
Total assets
9859
9149
8760
Morrisons revenue grows £1 billion every year, profit before tax rise 33% which is an excellent improvement in 2012, net income only increased 8.4% compared with profit before tax.
Sainsbury’s (J) PLC
Income statement (£ m)
2012
2011
2010
Revenue
22294
21102
19964
Operating profit/loss
874
851
710
Profit before tax
799
827
733
Net income
598
640
585
Total assets
12340
11399
10855
Sainsbury’s was struggling in 2012, due to both net income and profit before tax had negative growth, which was -7% for net income, -3.5% on profit before tax.
Overall, Tesco has total assets are £50781 million, over 5 times higher than Morrisons, in contrast, Sainsbury’s assets similar to Morrisons. Tesco as an international retailer, the total revenue reached £64539 million in 2012, Sainsbury’s revenue 3 times less than it, Morrions is behind Sainsbury’s which was £17663 million. Due to the store numbers, Morrions net income just £690 million in 2012, over 4 times less than Tesco, but the performance was better than previous years. Sainsbury’s has larger numbers of supermarkets and convenience stores than Morrisons, however, net income in Sainsbury’s only slightly higher than Morrions in year 2010 and 2011, the firm’s financial performance fell to minus growth in 2012. Morrions have great opportunity to compete with Sainsbury’s, even better profits. On the other hand, it is impossible to challenge Tesco, Morrions’ directors and shareholders should think expand business globally.
Conclusion
Morrisons provide high quality of fresh food at low prices and also offer high standard customer service by well-trained colleagues. Understand customers’ shopping habit, meet their expectation would increase shopper’s loyalty. Cost leadership strategy helped the retailer to acquire cost advantages by improving efficiencies and lower cost of materials.
The company has slow reaction on convenient shops; Tesco and Sainsbury’s have already taken huge advantage on smaller shops. However, Morrisons realised the importance of convenient store and accelerate to expansion. On the other hand, develop online shopping website and offer new products will generate more profits. Expansion in the UK market has great difficulty for Morrisons, due to Tesco and Sainsbury’s have occupied most areas, Tesco held 30% market share and successfully controlled the retailer industry, focus on UK market is its core business, there is very less opportunity for Morrisons to compete with this market leader, but the firm may have change to chase Sainsbury’s, consider the international market would help the business grow.
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