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Analysis of the UK grocery retail industry Essay

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Analysis of the UK grocery retail industry Table of contentsPage1.0 Introduction 32.0 Terms of references 32.1 The question 32.2 Methodology 33.0 Identification of main competitors 34.0 Assessment of relative market share 35.0 Relative significance of each competitor 45.1 Tesco 45.2 Sainsbury’s 55.3 ASDA 66.0 Potential for each competitor to capitalize on Internet technologies 76.1 Tesco 76.2 Sainsbury’s 76.3 ASDA 77.0 Potential threat on new entrants into the retail sector 8 8.0 Conclusion 99.0 Bibliography 10Figures:Figure 1. Market share 4Figure 2. Sainsbury’s mission 5Figure 3. Porters Five Forces model 81.0 IntroductionThe Authors has conducted this report to inform a North American retail group about the UK grocery retailer of the condition of the sector.

The report will present an analysis on the three largest grocery retailers to help the North American group to have a clearer understanding about the market in Britain.

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2.0 Terms of references2.1 The QuestionThe Authors have been assigned to analysis the retail grocery sector in the UK, the following statements will be answered; identification of the main competitors, assessment of relative market share, relative significant of each competitors, potential for each competitor to capitalise on internet technologies and potential threats of the new entrants into the retail sector.

2.2 Methodology This report has been conducted by using secondary source in form of textbooks, Internet, journals, annual report and a video. The main resources of information were taken from Internet and the annual reports for Tesco and Sainsbury’s. This has provided the writers with a clear understanding of the UK retail grocery market. 3.0 Identification of main competitorsAccording to the internet site Kamcity (2003) which have conducted a research on the UK grocery retailers, the five largest grocery stores in 2001 was as followed;1. Tesco2. Sainsbury3. ASDA4. Safeway5. Somerfield The Authors have decided to focus on the top three of the largest grocery stores and these will be examined throughout this report.

4.0 Assessment of the relative market shareThe approximate value of the food retail market is 65,3bn in the UK. Of them 16,5% belongs to Tesco who has the largest market share (Tesco, 2003). At second place comes Sainsbury’s who has 11,6% market share, ASDA has 9,6%. The five largest grocery retailers have 38,9 % of the total market, see figure 1.

Figure 1. Market share(McGregor 2002)5.0 Relative significance of each competitorThe UK is a country where many grocery retailers operate. The three largest retailer of the market will now be described in more detail.

5.1 TescoSir Jack Cohen founded Tesco in 1924. He used his gratuity from his Army service in the First World War to start selling groceries in London East end market in 1919. The brand Tesco first appeared on packets of tea in the 1920s. The first store was opened in 1929 in Burnt oak, Edgware.

Tesco is the UK’s biggest retailer chain who sells everything to satisfy customers’ needs such as books, grocery, household equipment, flowers, wine etc. (yahoo finance 2003) Tesco have stores in UK, republic of Ireland, France, Hungary, Poland, Czech Republic, Thailand, South Korea and Taiwan. Through these stores they employ 260 000 people which 65,000 of these are employed overseas that giving them access to a population of 280m across 10 markets. Their goal is to create 21 000 new jobs in the coming year. Their main market is in the UK where 55 new Tesco stores where opened in 2002, which results in 729 stores now. Their profit in 2002 was 1,221m before tax compared to previous year when the result 1,070m. The Tesco group are also offering a non-food division and retailing services. The non-food division consists of their own opticians. In order to make it easier for customers for that reason they can buy both their grocery and medicine at the same time. Tesco are also the owner of gas stations. The retail services are offering personal finance such as life insurance and general insurance (home, car, pet, travel), credit cards and loans and saving schemes and their own webpage (yahoo finance 2003).

Tescos are trying to satisfy their customer’s needs as good as possible. They are attempting needs by building their stores in different sizes:O Extra stores provide destination shopping with an extensive food and non-food offer, on major sites.

O Supermarkets provide one-stop shops for the weekly shop.

O Metro stores provide convenience in our high streets.

O Express stores for top-up and impulse shopping can be found in busy main roads.

Another thing they are achieving for customers are what they call Customer Champions. This persons’ function is to welcome customer to the store and resolve any customer queries or concerns. They also have a loyalty programme for the customers, where now customers can earn air miles when they shop. Since their club card launched in 1995, over 1 billion in vouchers has been given back to 10 m customers that are owner to a club card (Tesco 2002).

5.2 Sainsbury’sSainsbury’s supermarkets were established in 1869 by John James and Mary Ann Sainsbury and are Britain’s longest standing major food retailing chain. Sainsbury’s is a part of the J Sainsbury plc, which is a leading UK and US food retailer with interest in financial services and property. The group consist of Sainsbury’s supermarkets and Sainsbury’s Bank in the UK and Shaw’s supermarkets in the US but this report will concentrate on merely Sainsbury’s supermarkets.

Sainsbury’s mission is to be the customer’s first choice for food, delivering products of outstanding quality and great service at a competitive cost through working faster, simpler and together’. (Sainsbury’s 2003)Figure 2. Sainsbury’s mission(Sainsbury 2002)Sainsbury’s supermarkets are the number two of UK supermarkets. In 2002 the company had a profit before tax of 571m. There are 463 stores throughout the UK and nearly 60% of the stores are located in town-centre or edge-of-centre and serves over 11 million customers every week. Sainsbury’s supermarkets employ over 145,000 people, both part-time and full-time. A large Sainsbury’s supermarket offers over 23,000 products where 40% of them are Sainsbury’s own brand. In addition to a wide range of quality food and grocery products, many stores offer bread baked on the premises, delicatessen, meat and fish counters, pharmacies, coffee shops, restaurants and petrol stations. Quality food is a priority for the customers and a key component of the Sainsbury’s brand. The company is consistently investing in the food range and last year over 3,200 products were developed or improved and the own-label sub brands are among the best in the UK. Another key factor in the company’s business is the great service they deliver and the employees took part of retraining course last year to serve the customers even better. The company are currently looking over the store portfolio and the result is new formats that maximise the potential of the stores. This will satisfy the customer needs since they will find an adapted offer rather than the same range in every store. The reward card gives the company a clear and detailed insight into how groups of customers shop. By looking at those characteristics closely, offers beyond the traditional are possible. Three new concepts -, main mission’, main plus’ and mixed mission’ is invented to focus specifically what customers want rather than product range or available space. The store formats are as followed: Main mission’ format – This sort focus on the main weekly food shop that appeals mostly to families. Store range from 20,000 to around 48,000 sq ft. Main plus’ format – This category offers more food than any of the competitors. The size is around 45,000 sq ft and above. Mixed mission’ format – This format consist of two sorts of stores. The central stores aim is to be the best food store in town with offers like grab and go’, top up’ and meal solutions’. Stores may range between 7,000 and 20,000 sq ft. The local stores are small and focus on convenience near the office, on the way home or around the corner from home. They are between 2,000 and 6,000 sq ft. 5.3 ASDAThe company ASDA was founded in 1965 when a group of Yorkshire farmers decided to go together. ASDA’s successes lead to a partnership with the Wal-Mart family from U.S.A in 1999. The mission ASDA has is to be “Britain’s best value retailer, exceeding customers needs”, (ASDA 2003) offering prices 10% lower than main competitors on product such as fresh food, clothing, home, leisure and entertainment goods etc. The company also offers halal lamb and chicken to meet the demand of Muslim customers, this along with a range of ethnic foods, found in Hong Kong and Jamaica. ASDA assures that the “slaughter process are carefully set and monitored by ASDA’s Product Development Team”. (ASDA 2003) ASDA has currently 255 stores and 19 storehouses throughout the UK and is planning to open 10 new stores and two super centres, which is ASDA and Wal-Mart together, in 2003 creating a total of 3,900 new jobs boosting local economies. Superstores account for some 90% of the portfolio with is currently employing 109,000 colleagues. The company’s set purpose is to make goods and services more affordable to everyone. (ASDA 2003)The company ran a loyalty scheme a few years back. 19 of ASDA stores ran the scheme on trial, giving information, but the company in question decided to cancel the trial due to financial problems. Operating the loyalty scheme in every ASDA store proved to be very expensive, this would have created a problem with the company’s mission to offer cheaper prices. Information gathered during the trial showed customers of ASDA preferred low prices now than gifts in the future. (ASDA 2003)The company practices a “no excuses guaranteed” policy, it was set up to ensure the customers not to feel uncomfortable when they would return or exchange a product. This entitles the customer to a full cash refund even without a receipt. Customers overcharged or undercharged in any of the company’s stores, will be refunded the difference (if the customer has been overcharged) and is given a 2 gift voucher for each product that the customer has been charged wrongly with. ASDA also offers any disabled customer a range of additional service such as Braille guns, Electric Scooters and Spacehog. The first mentioned was introduced to the customers for the first time in 1998, it is a dynamo gun used to label products in Braille for blind customers. ASDA is the only retailer to offer this service across all stores. Electric scooter that is a scooter with an elevating seat enabling, disabled customers to reach products on the top shelf. The last mentioned is a high-tech warden, which speaks out whenever a vehicle pulls into a disabled parking space. Its purpose is to make people that park illegally to think twice and reassuring disabled customer that effort is being made to protect their parking spaces.

ASDA not only offers products mentioned earlier, the company also provides its customers with car, home and travel insurance. By teaming up with Norwich Union, UK’s biggest insurer. (ASDA 2003)6.0 Potential for each competitor to capitalize on Internet technologies All the three companies provide a webpage where general information can be found. The WebPages also includes online shopping but with a differentiation between each other.

Research show that British grocery shoppers spent 395m online in 2000 (Vickers 2001).

6.1 TescoTesco is not only the biggest UK food retailer; they are also biggest online supermarket. They were the first supermarket in 1998 to offer its customers an Internet connection (Computer Weekly). Now a day the website is operating in four countries. In fact Tesco.com claims to be ” world leading system at least two years ahead of the competition”. Tesco sales figures are generally 312 m per year, through 70,000 orders a week (Vickers 2001).

6.2 Sainsbury’sThe online shopping opportunity is called Sainsbury’s To You’ and is the second in the UK on-line grocery market with current sales of around 110m with 25,000 orders per week. Nearly 71% of the UK households are covered and it is operating from a dedicated picking centre and 53 stores nationwide. 6.3 ASDAProducts are available at identical prices to those found in the ASDA stores. The delivery charge is set to a standard of 4.25 and is free if the order is over 99. There is no minimum order amount; this means the customer can order as little or as much needed. (ASDA 2003)The Internet home shopping service is not yet available to all, although plans are set to expand as quickly as possible. By registering ones details on the company’s website, ASDA will contact the customer as soon as the service of home shopping is available in the area. Delivery is made 7 days a week, by choosing a two-hour delivery window when the order is placed, the customer can pick a slot 15 days in advance. 7.0 Potential threat of new entrants into the retail sectorPorter’s five forces are a useful staring point for undertaking a competitive analysis, in particular because they encourage a very wide definition of competition (Brassington and Pettit 2000: 858). By applying the Porter model, the following results have been discovered in the retail grocery market.

Figure 3. Porters Five Forces modelO Rivals- Since it is many competitors it is difficult to survive in the market, which makes it unattractive.

O Power of suppliers- The supplier has medium power.

O Powers of buyers- Consumers decide where they want to go therefore they have greatest power.

O Threat of substitutes- There are not many substitutes for the grocery market therefore it is attractiveO Threat of new entry- It is easy to enter the market, which make it more attractive.

The main threat to the retail sector is the smaller convenience stores that are located more central, which makes it easier to reach the customers. Majority of the large supermarkets are often located in the outside of the city. Since the UK has entered the European Union, the European companies can easier enter the British grocery market. Low price chains are becoming more popular way for family to do their weekly purchases.

8.0 ConclusionThis report have investigated the grocery industry sector and been concentrating on the three largest: Tesco, Sainsbury’s and ASDA. Of these three mentioned, Tesco is the retailer with largest market share in the UK. It is easy to enter the market but it would be inappropriate to aim for Tesco market share since they have a strong hold in the market. The three companies offer online shopping to their customers. Tesco capitalise Internet market by operating in different countries. To be able to compete with the main players about the customers demand. Since nowadays it is more common to use the Internet for grocery shopping since it is more convenient for the buyers. Therefore this would be an important aspect for the North American retail group to consider when entering the market.

The authors found some problems with implementation of the analyse. The request for ASDA annual report wasn’t taken seriously from the company, this resulted in that the writers weren’t provided with a report. Another problem that occurred was the Internet, since it is a huge information source. The information differed from site to site which confused the authors with knowing which source that is reliable.

9.0 Bibliography Textbooks:Brassington F& Pettitt S (2000), ‘Principles of marketing’, Second edition, Pitman publishing, EssexMalhotra N K & Birks D F (1999),’Marketing Research-An applied approach’, Pearson Education, Harlow, UKInternet:ASDA (2003), ASDA’, Available at www.asda.co.uk, accessed 23/03/03BBC news, (2003), Tesco joints battle for Safeway’, Available at http://news.bbc.co.uk/1/hi/business/2682559.stm, accessed 14/03/03Computer weekly (1998), Tesco’, Available at http://web3.infotrac.galegroup.com/itw/infomark/522/703/59532309w3/purl=re1_EB, accessed 27/03/03Kamcity (2003), World of Retail’ Available at www.kamcity.com/wor/Europe/UK.htlm, accessed 17/03/03McGregor A (2003), Retail:Big players’, Available at www.prospects.ac.uk/cms/ShowPage/Home_page/Industry_insights/Retail/Big_accessed 01/04/03Sainsbury’s (2003), Sainsbury’s’, Available at www.j-sainsbury.co.uk, accessed 08/04/03Tesco (2002), Tesco’, Available at www.tesco.com, accessed 10/03/03 Vickers A (2001), Tesco stacks up online sales’, The Guardian, Available at http://media.guardian.co.uk/Print/0,3858,4168381,00.html accessed 13/03/03Yahoo finance (2003), Tesco- the leading supermarket in Britain’, Available at http://uk.biz.yahoo.com/p/t/tsco.l.html accessed 16/03/03Video:Oh what a lovely report’, Longman training, Management supervisoryOthers:J Sainsbury Plc (2003) Annual report and financial statement 2002’J Sainsbury Plc (2003) Annual review and summary financial statement 2002’Tesco (2003) Annual report 2002’This paper is the property of freeforessays.com Copyright 2002-2003

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Analysis of the UK grocery retail industry Essay. (2019, Mar 13). Retrieved from https://graduateway.com/analysis-of-the-uk-grocery-retail-industry/

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