Supermarket Industry Pest Analysis

1. Supermarket Industry Pest Analysis POLITICAL MMC report – Oct 2000 – report on restrictive trade practices within the industry. Planning report – 1995/6 – restriction of planning on out of town supermarkets. Pressure from declining agriculture industry to increase prices. See fig 1.1 “The price of livestock in the uk has dropped in the last few years and in cash terms to the customer has fallen even more. For example, for pig meat, the farmer gets £38 per head less than in 1996, the processor gets £2 per head less than in 1996 and Sainsburys gets £4 per head less than in 1996. Prices to Sainsburys customers however are equivalent to £44 per head less than in 1996.”

2. Supermarket Industry Pest Analysis Economical Economies of Scale & Scope Barriers to entry e.g Planning Report “Over the last five years over 650 new grocery stores have opened nationwide, ranging in size from 3,000 sq feet to over 25,000 sq feet. Retailers have created no barriers to entry for new competitors who continue to fight for market share with the more established retailers. There have been five major new companies which have entered the UK market in the last ten years. These include Wal-Mart, the worlds largest retailer and Aldi the 6th largest retailer in Europe” Brutal Price Competition Increased competition within industry Expansion and Acquisition. e.g Sainsburys bought out Star markets and opened stores in Egypt. Asda bought 60 Gateway stores in 1994. Non price / Brand competition – e.g reward points, advertising Competition from European discount stores. E.g. Lidl Competition from independent, small chain, specialists Fall in return on net assets/profits across industry – compounded by price promotions. Cost of groceries falls below rate of inflation in real terms 9.4% since 1989 Product Life Cycle – Supermarkets saturated industry

3. Supermarket Industry Pest Analysis Social Sophisticated shopping patterns of UK consumer increase market competitiveness. “The notion of ‘one-stop shopping’ is fictitous. In the UK 75% of consumers shop more than once a week and spread their custom around two other stores as well as the store they use for their main shop. Sainsburys customers do over 22% of their grocery shopping at shops run by smaller chains, specialists and independents.” Car ownership increase – easier access to out of town centres. Supermarkets major employer, especially female & part time e.g Sainburys directly employs 140,000 people nationwide People have les leisure time, therefore supermarkets offer more convenience Supermarket shopping voted no.1 favourite family Sunday past time. In store events such as single nights & fancy dress dress days. The first person to marry as a result of these receives reception at cafeteria and marriage in store. Change in consumer taste – increased demand for organic produce & ban of GM foods. Health concerns – eg BSE outbreak precipitated ban of British beef. Increased out of town locations implies a change in customers because you need a car to get to them.

4. Supermarket Industry Pest Analysis Technological Quicker Shopping. Personal shopping with a trolley gun – e.g Waitrose. High investment costs of new tills in M&S. Online Shopping – e.g Tesco. Sainbury estimates by 2005 £25 billion will be spent on this. Storage systems – sourcing from other stores. Layout of stores designed to optimise sales – e.g most popular goods at back. Quicker building time of supermarkets – e.g Asda store took 32 weeks to build. Technology to predict buying habits.

5. Supermarket Industry 5 Forces Analysis Threat of entry No barriers to newcomers. E.g. Walmart, Aldi Investment & Technological costs to enter. E.g. M&S New tills Size and power of large supermakets unable to retaliate. E.g. on price/value/quality MMC reports. Government legislation opposing out of town supermarkets in some areas. Power of Buyers & Suppliers High buyer power – There is a high volume of buyers and thus few retailers dominate Alternative sources of supply – e.g. beef crisis – looked to Europe Low cost of switching supplier. – Famers lose out.

6. Supermarket Industry 5 Forces Analysis Competitive Rivalry V high price wars / reductions. Quality & value – attract new/diff segments of market Difficult to differentiate. E.g. M&S no longer is niche market. Higher advert costs – Sainsbury £64 – Jamie Oliver M&S – naked woman Customer incentives – e.g. Leeland, BOGOFS – 2 for ones. Loyalty cards – need to retain ustomers and reduce switching Threat of substitutes Product for product substitution within industry Smaller chain / independent retailers – loyalty cards.