Strategic analysis
- Industry structure………………………………………………………………………………..
- Market structure………………………………………………………………………………….
- Competitors analysis…………………………………………………………………………….
- Consumers analysis………………………………………………………………………………
- Organisational porpoise……………………………………………………………………….
- Mission…………………………………………………………………………………………….
- Vision……………………………………………………………………………………………….
- Financial performance and position………………………………………………….
- Internal analysis……………………………………………………………………………………
- External analysis………………………………………………………………………………….
- Competitive environment…………………………………………………………………….
- Basis of competition and key success factors……………………………………….
Strategic development
- Existing strategies…………………………………………………………………………………….
- Generation of strategic options……………………………………………………………….
- External strategies……………………………………………………………………………….
- Internal strategies……………………………………………………………………………….
- Expansion strategies ……………………………………………………………………………
- Strategies evaluation………………………………………………………………………………
- Short-term strategies………………………………………………………………………….
- Medium-term strategies………………………………………………………………………
- Long-term strategies……………………………………………………………………………
- Strategy evaluation in relation to strategic goal……………………………………
- Choice of strategies……………………………………………………………………………….
Strategic Implementation
- Strategies’ overview…………………………………………………………………………………
- Gantt chart……………………………………………………………………………………………….
- Organisational structure………………………………………………………………………….
1 Industry analysis
1.1 Market structure
Figure 1 – The UK Grocery Market Share from 2016 to 2020 [1] [2]
Interpretation
The UK groceries industry presents a high level of competition and saturation. As low product differentiation exists between supermarkets, grocery stores differ from each other by products pricing and quality. The UK groceries market consists of low, average, and high costs supermarkets. The low-cost grocery stores are represented by Aldi, Iceland, Lidl and Asda, which present overall low-quality products. Whilst average cost supermarket are Tesco, Morrison and Sainsbury, which offers good quality products. Thus, high-cost grocery stores are Co-op and Waitrose [3]. While Waitrose provides the best quality products on the market, Co-op has been reported to have poor standards compared to their high pricing [4].
Despite the fragmentation of the market, Tesco in 1996 become the grocery market leader. The supermarket's success lies in the analysis of customers’ behaviour. Tesco was the first supermarket to release a Clubcard in a computerised age, which enable the company to offer personalised discounts; Thus, Tesco’s dominance was cemented by its massive expansion, which permitted it to benefit from economy of scale [5].
Between 2015 and 2020 the supermarket which retained the highest market share ( Tesco, Sainsbury, Asda and Morrison) experienced a recession. Oppositely, this period shows the rise of discounters such as Lidl and Aldi which had a respective increase of market share equal to 2,7 % and 2,5 %. These supermarket discounters adopted a “no frills” strategy in which were offered a limited range of goods at extraordinarily competitive prices [6]. Thus, Aldi and Lidl have an impressive strategic alignment between their supply chain and sale strategies, that comprise segmentation. As a consequence, demand patterns had been more predictable, and the supply chain costs decreased. Therefore, a low-cost business model that maintains strategic alignment is arguable at the centre of Aldi’s and Lidl’s success. . Nonetheless, Aldi and Lidl's rapid growth could be also due to the general supermarket price inflation as Brexit and coronavirus restrictions inverted deflationary shift in grocery [7].
As 46% of consumers think UK groceries should reduce plastic usage and carbon emission, sustainability and environmental consciousness become a trend in the grocery market [8]. An example can be proposed by Tesco’s ambition which aimed to reduce their operation’s carbon emission of 35% by 2020, 60% decrease by 2025, and 100% by 2050 [9].
1.2 Competitors analysis
Tesco
Tesco targets cost-conscious customers who seek additional quality and a good variety. Referring to porter’s generic strategy, Tesco implemented a cost leadership and differentiation strategy. Consequently, the grocery market leader keeps as low prices as possible without compromising the products’ quality. Tesco benefits from economy of scale, and it works closely with suppliers to ensure efficiency in the supply chain to reduce expenses [10]. Moreover, Tesco also adopted a differentiation strategy [11]. Data reported that the business Stocked up to 90,000 different products [12]. This could increase the company’s margins, as consumers do not perceive substitutes in the market, and increase customers’ brand loyalty.
Waitrose
Waitrose applied a differentiation strategy selling quality products to consumers which are more expensive than the average market price. Waitrose also provides high quality service to its customers. The business implemented this differentiation strategy as high-quality products sold with the best customers service strengthen the relationship and force customers to visit the brand again. Thus, Waitrose committed £ 1 billion over 5 years to transform its online business and physical shops [13]
Lidl
Lidl adopted a low pricing strategy to attract new consumers target customers that are price sensitive [14]. This company is able to offer low pricing as most of the products offered are under Lidl private brand, eliminating the middleman and decreasing the supply chain costs. Lidl’s low pricing is also enabled by the limited number of employees per store. The company’s GB chief executive stated that Lidl will invest £ 1,3 billion in 2021 to open about 50 new supermarkets, and to improve their loyalty app called Lidl plus which offers product discounts to consumers [15].
1.3 Consumer analysis
Figure 1 shows that the amount of money spent on groceries is continuously increasing. The market value increased only from 2019 to 2020 by £ 97 billion. This happened as the COVID-19 pandemic has forced people to consume all their meals at home [16].
Acknowledging that there is a wide spectrum of grocery consumers, it is recognised that there is a clear dichotomy between those who are quality driven customers and those who are price sensitive. Both cohorts differ on price elasticity as their habits differ. As discounters are growing, there is a higher number of consumers who are considered price elastic as their purchasing actions are triggered by discounts and low prices [17]. Whilst, a different part of consumers, results to be driven by quality rather than the price of products; Therefore, they are considered inelastic to price. Part of this group are people that look for vegan and vegetarian products, which are increasing due to the rise in environmental awareness [18].
Figure 2 [[19]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn19>)
Figure 3 [[20]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn20>)
*Sources adapted from Statista, 2020, accessed April 21th,2021*
Figure 2 shows the always growing consumers’ habit towards online groceries shopping. The online grocery market size picked in 2020 reaching 11% of the overall grocery market [21]. This shift occurred as a consequence of Covid-19 and UK national lockdown incurred in March 2020. https://reports-mintel-com.ezproxy.sussex.ac.uk/display/1054617/?fromSearch=%3Ffreetext%3Donline%2520groceries%2520uk%2520%2520trend%2520 Nonetheless, despite the fact that lockdown has been eased since June 2020 until October, https://www.instituteforgovernment.org.uk/sites/default/files/timeline-lockdown-web.pdf consumers habit towards online grocery shipping did not default as pre-pandemic. Therefore, it could be assumed that a relevant portion of consumers will keep shopping online in the future despite coronavirus. Indeed, Figure 4 shows that 42 % of consumers forecast to carry on shopping online grocery.
1.4 Company analysis
Morrison is an English supermarket chain that adopted an average product pricing. The company is a value-led grocer that focuses on quality fresh food as it owns the UK’s second-largest fresh food manufacturer [22]. The business implemented a combination of differentiation, cost leadership and focus strategy [23]This strategy allowed the company to gain a competitive advantage in an intense market and to be UK's fourth largest supermarket chain having 494 stores [24], and employing 98,619 workers in 2020 [25]. Nonetheless, Morrison since 2015 lost 0,7 % market share and the number of employees decreased by 21,159. Data highlight a recession in Morrison’s operations as supermarket discounters as Lidl and Aldi are constantly growing.
1.5 Organizational porpoise
1.5.1 Mission Statement
Morrison’s aim is “to make and provide the food we’re all proud of, where everyone’s effort is worthwhile, so more and more people can afford to enjoy eating well” [26].
1.5.2 Vision
Morrison’s vision is to rebuild the company by strengthening and defining the brand [27].
Morrison is committed to be more competitive serving their customers better, helping them to save money and finding local solutions. Thus, it wants to offer customers more of what they want on a shopping trip.
Morrison successfully provided customers with good quality as well as great prices and helped local communities to grow sourcing products from local food makers. It offered extra experiences to customers visiting stores such as key cutting and mobile phone repair stations. Therefore, it can be concluded that the company did what it promised to customers.
1.5.3 Financial Performance and Position Profitability
Figure 4 [[28]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn28>)
Table to show annual profit margin of average-price retailers from 2016 to 2020
Figure 5 [[29]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn29>) [[30]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn30>)
*Sources adapted from Statista & Orbis Database, 2021, accessed April 23rd,2021*
Figure 6 [[31]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn31>) [[32]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn32>)
Sources adapted from Statista & Orbis Database, 2021, accessed April 25th,2021
Interpretation
Although Morrison’s market share is continuously decreased, its turnover significantly raised since 2016 due to the grocery market size expansion and Morrison's strategy of investing in pricing and implementing a better stores appeal [33]. As revenue, the profit margin increased by the past 5 years and it generally results to be above the industry average. Nonetheless, data revealed that Morrison’s strong performance it has strongly been underpinned by its wholesale Business. Indeed, in 2020 the profit margin reached its peak as a wholesale supply partnership with McColl’s and Amazon and a supply arrangement with Channel Islands-based Sandpiper, enabled Morrison to generate about £1 billion in 2020 [34]. Nevertheless, in 2020 the turnover results to decrease compared with 2019. This is due to extra costs related to coronavirus equal to £148 and customer preference for lower-margin products [35]. Additionally, as return on capital employed has risen significantly and it broadly matches competitors’ average, Morrison’s investment towards online sales, wholesale and store design showed a good degree of profitability. Thereby, this can indicate that there are high opportunities of investment.
Figure 7 [[36]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn36>) [[37]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn37>)
*Sources adapted from Fame, 2021, accessed April 25th,202*
Figure 8 [[38]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn38>)
*Sources adapted from Fame, 2021, accessed April 27th,2021*
Figure 9 [[39]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn39>)
*Sources adapted from Orbis and Bloomberg, 2021, accessed April 28st,2021*
Figure 10[[40]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn40>)
*Sources adapted from Fame, 2021, accessed May 7th,2021*
Figure 8 shows that Morrison had liabilities of £2.93b due 2020. Thus, data reported liabilities of £3.49b due beyond 2020. As the company had £229m in cash and £383m in receivables, Morrison’s liabilities exceed the total of its near-term receivables and cash by £5.8b [41]. Due to Morrison’s deficit being higher than the company’s market capitalization of £4.31b, the business should carefully observe its debts as it represents a high risk. An extreme dilution of earnings per share might be required if Morrison was obliged to pay its debts by raising capital at the actual share price. Net debt to EBITDA and interest cover ratios are fundamental to understand how easily the company will pay off its debts [42]. Looking at Figure 9, it appears that Morrison borrowed capital in a reasonable way. Nonetheless, in case of EBITDA will decline, managing the debt will represent a challenge for Morrison. This is augmented by its low ability to use its near cash to extinguish current liabilities compared to its competitors, which is shown in figure 10
Figure 11[[43]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn43>)
*Sources adapted from Fame, 2021, accessed May 6th,2021*
Figure 11 shows that Morrison has a much lower portion of debt versus equity, compared to the grocery market leader ( Tesco). As Morrison had a gearing ratio equal to 74.8% in 2016, it was more susceptible to default loans and bankruptcy. Nevertheless, this value decreased to 51.3% in 2020 which can be considered as a good value for an established company [44]. The gearing rate value is relevant as it further asses Morrison’s financial fitness concerning debt, which may represent a future issue for the company.
1.6 Internal analysis
VRIN framework
Figure 12
Low price quality product
Morrison gains a comparative advantage by providing customers low price products with relatively high quality. This is enabled by a cost leadership strategy in which the business minimizes its operational costs [45]. Nonetheless, this strategy as imitable, it has also been used by Tesco and Sainsbury in the attempt to match the German discounter prices [46].
Supply chain
Morrison creates value through a well-integrated supply chain. Several Morrison’s products are produced by the own company’s manufacturers and distributed through its own network eliminating the middleman. Although, it is rare, as this comport a significant reduction in operational cost, another supermarket like Tesco have begun to manufacture a significant amount of their own products.
Customer loyalty
Morrison is recognised nationwide having more than 100 years of supermarket history. Loyal customers are fundamental spending more money, more frequently and cost retailers less rather than acquiring new customers [47]. Therefore, Morrison creates value for customers by offering loyalty scheme which provides customers with personalised discounts [48].
Wholesale partnership
The wholesale supply partnerships accounted for 7.2% of Morrison’s revenue in 2020. Despite that the company will supply McColl's retail group until 2027 [49], the supply partnership with Amazon is what makes Morrison unique in the UK grocery market. As Amazon's grocery delivery business grew by 129% in 2020 and the first amazon fresh physical store landed in UK [50]. Morrison’s partnership with amazon can present an always more fundamental comparative advantage.
Competitive issue
Limited geographical presence
Figure 13 [[51]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn51>)
Sources adapted from Statista & Morrison corporate, 2021, accessed April 30th,2021
Figure 14[[52]](<https://www.notion.so/49fd85d424124a6d9b98bbca20bc12b2#_ftn52>)
*Sources adapted from Statista, 2021, accessed May 8th,2021*