UK Supermarkets Competitive Strategy

UK Super securities industrys rivalrous dodgingEvaluate how UK super grocery shop classs use marketplace variance, hindquartersing and conforming to gain a warlike advantage.1. IntroductionThis afford-up sets out to apply basal division, tooshieing and positioning concepts to the UK supermarket welkin and leave tramp evaluate the limit to which the use of these concepts is leading to the achievement of sustain fit wanton-enterprise(a) advantage with altogether or all of the supermarkets selected.The point allow be on the triple major supermarkets Tesco, Asda and Sainsbury.The paper go out bring with an explanation of the concepts and will move on to a description of the strategicalal positioning of each of the major supermarkets in the current marketplace. Chapter 4 will evaluate the relative success of the three companies chosen and assess the extent to which their court to partition and positioning has enabled them to achieve some measure of competit ive advantage.Sources of information argon recognised merchandising textbooks, articles from learned journals, upstartspapers and periodicals and company yearly reports and websites.2. Definitions, explanations and questions2.1 Definitions of the basic conceptsJobber defines segmentation as the identification of individuals or organisations with same characteristics which digest signifi stoo take out implications for the determination of merchandise strategy. 1 It is a process which results in the clustering of plurality with supposedly similar buying demeanour, such(prenominal) that marketing mixes can be designed to meet the specific needs and wants of peoplewithin the cluster.Once the market has been described in terms of an dental amalgam of homogeneous segments, companies need to decide which, if any, segments to target. Should they adopt a niche court (like Morgan in the automobile sector), where only 1 type of vehicle is produced for a specific segment of the market, or should they adopt a mass market coerage approach (like Ford or GM), where vehicles be produced to draw in to the hearty range of diametrical requirements across the different segments?Positioning describes the manner by which a company differentiates its products/ redevelopments from the disputation within each target market. Some dates these differences are rattling fine. Mercedes and BMW both fork over, for example, quality images and are priced lofty relative to most competitors scarce Mercedes has historically had a greater aggregation among older, more than conservative drivers and BMW has appealed more to those who see themselves as dynamic and thrusting.22.2 air division rationaleAt one level the segmentation process enables companies to orientate their products or function to meet the needs of the market better than competitors and to tell apart segments which are aligned with their capabilities as a company. They are also able to select segments which a re swelled enough for them to supply efficiently. Segmentation and so facilitates differentiation, which should improve competitiveness, which should, in turn, lead to higher profitability.Barwise and Meehan draw attention to a possible fallacy in this form of reasoning. They cite the example of the different positioning strategies of hotshot2One (now T-Mobile) and orangish in the battle for market assign in the UK mobile telecoms market.3 chromatic straitsed to provide a reliable, high quality overall client experience with good set for money(they) targeted the whole market, non just a specific segment. 4 One2One, on the other hand, adopted a strongly focused, segmentation strategy. it positioned itself as a low-cost, friendly ne 2rk adapted for people wanting to chat with friendspriority on big citiesfree off-peak topical anaesthetic calls. 5By far the most successful company (Orange) was the one which offered generic fellowship benefits to the whole market, not a hi ghly segment approach. This is relevant to an understanding of success in the supermarket sector and will be referred to later.2.3 Different forms of segmentation grocerying text books describe three basic types of segmentationBehaviouralPsychographicProfileThe demeanoural course covers benefits sought, purchasing behaviour and product usage and wisdoms and beliefs.The psychographic category covers lifestyles and personality breakdownsThe broad profile category covers age, gender, stage in the life cycle, social class, geographic location, income.6Often a combination of variables across the categories is used. Research Services Ltd, a UK marketing look company, has developed SAGACITY, a segmentation scheme based on a combination of life cycle, occupation and income. They form 12 pellucid consumer groupings with differing aspirations and behaviour patterns.7A.C. Nielsen, the international marketing research agency, uses a combination of all segmentation categories to describe t ypes of shoppers in supermarkets. They break the market down into 6 distinct groupingsHabit-bound Diehards favourable and ContentedsMercenariesStruggling IdealistsFrenzied CopersSelf-indulgents 8The purpose of this breakdown appears to be to fulfil product and utility delivery to the needs and wants of the different segmentsto identify the probablely most profitable segmentsOne interesting point which emerged from this programme was that segments such as the Struggling Idealists were, at the time the TV programme was do in 2002, not of great interest to supermarkets as they did not overhaul a lot and insisted on organic fertiliser and eco-friendly products, which did not seem to be of interest to the mass market . In just 4 historic period the market has changed dramatically and supermarkets are allocating significantly more shelf-space to such products and gravel to attract shoppers with verdancy evaluates.9 The segment has self-aggrandising in terms of its potence value to supermarkets.This highlights the need for a creative and dynamic approach to segmentation. Orange now uses data-mining software within a sophisticated CRM (Customer Relationship Management) musical arrangement to monitor segments on a day-to-day basis and to adjust its service approach accordingly. It will, for example adjust its pricing and service delivery to the value of the customer. Premium customers are immediately recognised by call-centres and accorded priority in the queuing system.10 This keen focus on the most profitable customers contrasts with most supermarkets, which offer separate tills for customers who have not bought much, allowing them to move more quickly by means of the checkouts than the customers with laden trolleys. This will again be referred to in later sections.2.4 competitive AdvantageFinally, in this chapter, a few clarifying words on the meaning, and sources, of competitive advantage, with specific reference to the supermarket sector.Grant define s the concept as followsWhen two firms competeone firm possesses a competitive advantage over the other when it earns a higher rate of profit or has the potential to earn a higher rate of profit.11It is important to note the chief(prenominal) point here competitive advantage relates to profitability or potential profitability, not to r regularue, market share or more qualitative measures such as image or reputation. This is the definition which will be apply in this paper.The international consulting company, Accenture, published last year a paper called Consuming Passions, a study of the six leading global retailers. One of its aims was to identify the common factors which led to their high performance in the market over a long period of time.12 It identified six centre of attention competencies which underpin high performance in the retail sectorstrategic intentcustomer focusinnovation and commercialisationoperational purityalliances and collaborationtalent management13In the introduction to the paper the authors stateThe epithet of the winning game is differentiation that is meaningful and relevant to the customer base. simply this isnt just a matter of offering new products and services those products and services must also be highly distinctive, relevant to target customers and in the right stores, with the right price and promotion combination and at the right time.14These ideas will be developed further in the nigh chapter when examining the individual supermarket companies.3. The Major Supermarkets3.1 OverviewThe UK supermarket sector is highly concentrated. The five leading companies unneurotic have 73% of the total market. Only France has a more concentrated market, with 78% being taken up by the top five.15 Until the middle 1990s Sainsburys was market leader but the follow one position was taken by Tesco in 1996 and they have since grown market share to 30% plus of the UK market. Sainsbury is now in third position behind Asda, which was bought by Walmart in 1999. The paragraphs below briefly describe the current financial situation of each company, their strategic marketing focus and the extent to which each appears to be applying segmentation approaches. Most of the information comes from the respective company websites.3.2 Tesco16In 2005 Tesco achieved sales disturbance of 37.1 bill. and profits of 2,029m. Profits and sales have grown consistently over the past 5 years. Profits from 2004-5 grew by 20.5% on sales result of 12.4%. The company employs 360,000 people worldwide and has 2,000 stores. 111 new stores are planned for 2006.Its long-term strategy is based on four separate ripening in the core UK businessexpansion from international growthto be as strong in non- nourishment as in foodto follow customers into new retailing servicesTesco appears to take customer focus and staff focus very seriously. An ongoing project entitled any Little Helps is in process which has used question times with more than 9,0 00 customers to help them to understand how they can best improve service to customers on a day-to-day basis. This has resulted in parking bays for trolleys (to stop annoying customers), peculiar(a) staff on checkouts (to reduce waiting times) and fresh food counters and self-service cafes for customers in a hurry.Using their Clubcard as the data source Tesco beam out mailings every quarter to 11million customers. The mailings have an yearbookised value to customers (if they use them) of 250m. and can be adjusted to take account of individual customer buying behaviour.Tesco has a range of different stores in line with its belief thatCustomers have different needs at different times so we slew our stores as well as our products. From Value to Finest and from Express to Extra, theres something for everyone at Tesco.17Value products are low-priced basics for customers on a tight budget. Finest are products with the finest ingredients for customers who appreciate fine food and are lively to pay higher prices for higher quality. Express are smaller stores in local communities for people who would find it difficult to get to a large Tesco store. Metro are stores in town and city centres for the thingmajig of customers who pick out to shop in town rather than in the Superstores out of town. These Superstores are particularly for one-stop shoppers who can find everything they need for their weekly shopping18. They channelize not only a wide range of food lines but also the most popular Tesco non-food lines. Tesco Extra is a major new development foc development on non-.food lines, but with extensive food and gimmick lines. As only 20% of the UK population has access to such stores Tesco intends opening move 20 more this year.For all health-conscious customers (viz. the struggling idealists in 2.3) Tesco has introduced better labelling, forage guides and Free-from and organic ranges.For price-conscious customers who also like good service they have introduce d the note Change programme and Everyday Low Pricing.For the growing number of customers who prefer to order from home and get home deliveries Tesco provides an on-line service which now supplies 150,000 customers/day.3.3 AsdaIt is difficult to obtain separate financial results for Asda Wal-Mart as the figures are hidden away in Wal-Marts consolidated accounts. The corporate website in the UK is also not nearly as transparent close strategic and marketing issues as Tesco, Sainsbury, Waitrose and Morrisons. Figures therefore, for the most part, need to be gleaned from outside sources or estimated. Figures quoted below are taken, for the most part, from Datamonitor.19In 2005 Asda had a sales turnover of 16.25bill., a growth of 19.8% over the previous year. Since Wal-Mart bought the company in 1999 market share in the UK has risen from 13% to 16%, putting them in second position ahead of Sainsbury.The company has 265 Asda stores, 19 superstores, 1 pilot program store in General Merc handising and 6 trial George stores specialising in mold clothing. The company plans to open 10-12 new stores each year.60% of Asdas sales are currently in grocery items, although it intends to build on the growth of non-food products in store, which may well change this balance. Asda sells six own-brand labels Asda Smartprice, Asda, safe(p) for You, Asda Organic, Asda Extra Special and More for Kids.20Asda management appears to plan to grow in the future via more stores, a focus on clothing (via its George fashion range Asda has now overtaken Marks and Spencer as the UKs largest clothing retailer21)and non-food, growth from specialist outlets within the stores opticians, jewellers and photographic and possibly a greater defend into the childrens market.Their chief(prenominal) marketing thrust in-line with the Wal-Mart reputation is to be seen by the mass market as the price leader. They in fact claimed to be the official lowest price supermarket in the UK but this was based o n a survey of just 33 lines and, after complaints from Tesco, the claim had to be lifted.22 Since Wal-Marts takeover of Asda there has been an ongoing price war with Sainsbury and Tesco, which has raise Asdas profile as a low-price store. Apart from price the main differentiators are the twin focuses on non-food and clothing and the particular focus on the kids market. Like Tesco and Sainsburys they are also trying to attract higher income and green customers with its Good for You, Organics and Asda Extra Special brands. They also have an on-line rules of order and delivery service.Asda undoubtedly has an image problem because of its association with Wal-Mart.Asda has been criticised for misleading advertising, using suppliers who are known to have illegal employment practices, ignoring planning regulations and destroying greenbelt land, lack of serious environmental policy and blatant greenwash. With its strategy of consolidation, copied directly from Wal-Mart, Asda pursues an aggressive takeover policy of small towns, wiping out local competition and local jobs. False claims by the company close value and convenience, have been challenged, along with the exploitation of every opportunity to push pulsing buying.23No specific evidence was found, but negative information, such as the above about Wal-Mart, abounds on the internet and it is probable that this will make it more difficult for Asda to position itself such that it attracts the more educated, aware customers.3.4 J SainsburySainsbury achieved total sales in 2005 of 16.36bill. and profits after task of 65m. This compared with meagerly lower sales in the previous year and a significantly larger profit then of 404m.24 Sainsbury appears to be struggling. It has suffered from bleak price competition from Asda and Tesco and also failed to implement effectively a new logistics system, which resulted in severe out-of-stock problems which alienated customers.The company has 727 stores in all, 465 of wh ich are supermarkets and 262 are the smaller convenience stores. It employs 153,000 people.Sainsbury is currently undergoing a change programme entitled Making Sainsburys Great Again 2007/825. Some elements of this programme are very relevant to its positioning in the market. In line with Barwise and Meehans intellection on generic category benefits26 Sainsbury wish to restore the universal appeal of the brand. This comprises four elementsbe all inclusive (appeal to all segments of the market)have a clear product hierarchy GOOD, BETTER, BEST (not assuming that certain segments go for a defined quality of product but that all customers chopper and change).invest in price and quality (400m in 2006)scale to pull round (ensure that there is sufficient overall demand in the chosen products/markets to get costs down to a manageable level)This all translates into a customer proposition which their annual report describes as followsgreat food/ median(a) pricesmarket leaders in quality an d innovationcomplementary non-food simple formats supermarkets, convenience and Sainsburys to You(on-line)bankSainsbury advertising focuses on two messageswe have reduced price on 4000 linesTry something new todayThe spring has clear universal appeal and aims to enable Sainsbury to compete on price with Asda and Tesco. The former appears to be focused more on higher income categories (the Self-indulgents and Comfortable and Contenteds mentioned in 2.3.4. Conclusions and final thoughtsIn a 1994 article on segmentation in the retail sector the following statement is madeany strategic option depends on clear positioning against competitors and customer groups (and the ) approach of integrating competitive analysis with market segmentation is a requirement first step to achieving a better understanding of the retailing environment and formulating effective marketing strategiessupermarket retailers must attract customers from different and often unsuited market segments. 27This statem ent still appears to have validity to-day. wholly three supermarkets mentioned in this paper wish to attract customers from the higher income AB socio-economic category by offering them better service, high quality and tasty foods, organic foods and a clean and welcoming atmosphere. These customers will spend more and will buy products which offer the retailer higher margins. At the same time all supermarkets seek to position themselves as low price operators, and so appealing to lower income groups and those across all income groups who seek bargains (the mercenaries in 2.3). It is the thoughtfulness of the writer that Tesco is clearly the most successful at positioning itself to appeal to both ends of the spectrum.According to data in Morrisons 2005 annual report about 25% of Sainsburys customers fall into the AB category whereas with Tesco it is only 20% and with Asda it is about 17%. Asda on the other hand (from the same annual report) rates very highly in terms of customer p erception of value for money, Tesco is slightly lower and Sainsbury is even below Waitrose, a store which is traditionally associated with high prices.All realise that location is vital and that even to-days motorised customer will not put herself about too much to go to stores too far away. Hence all are moving towards the development of smaller stores to attract local communities. All use brand loyalty cards, but Tesco appears to be the most successful at using data on the card to enable it to adjust offerings to individual customer requirements.There are great similarities between the companies and their marketing approaches. Each follows the other very closely. What appears to make Tesco stand out is not so much a more sophisticated approach to segmentation and differentiation, but one of the key competencies in the Accenture report, Consuming Passions28 its ability to commix a clear strategy with operational excellence. At the time of writing (April 25, 2006) Tesco has just released performance figures for the past 12 months. They indicate a 13.2% growth in sales and a 16.7% growth in before tax profit. 29BIBLIOGRAPHYBooksBarwise B. and Meehan S (2004), Simply Better, Harvard Business School PressGrant RM (1997), coeval Strategic Analysis, BlackwellJobber D. (2004), Principles and Practice of Marketing, McGraw HillKotler P. and Armstrong G.(2004), Principles of Marketing, Prentice HallJournals/ account statements nameless author of Asda base Limited in Datamonitor, June, 2005Anonymous author of Organics UK in Mintel Report, November 2005Mann S., metalworker J. and Trouv O. (2006), Consuming Passions, Accentureindustry report in Outlook 2005Segal M. and Giacobbe R. (1994), Market Segmentation and CompetitiveAnalysis for Supermarket selling, International Journal of Retail Distribution Management, Vol.22, No.1, pp.38-48Internet sourceswww.asda.co.ukwww.corporatewatch.org.ukwww.guardian.co.ukwww.mcgraw-hill.co.uk/textbooks/ jobberwww.morrisons.co.ukww w.npr.orgwww.sainsbury.co.ukwww.tesco.comFootnotes1 Jobber (2004), Principles and Practice of Marketing, p. 2102 From A to B, vallecula 4, 19983 Barwise and Meehan (2004), Simply Better, p. 44 Barwise and Meehan, pp. 3-45 Barwise and Meehan, pp. 4-56 Jobber, p. 2147 Jobber, p. 2248 Shop till you drop, Channel 4, 20029 Organics UK, November, 2005, Mintel Report10 Orange a Fruitful Passion, supplementary case on the Jobber website, www.mcgraw-hill.co.uk/textbooks/jobber11 Grant R.M., Contemporary Strategic Analysis, p.15112 Mann S., Smith J. and Trouv O., Consuming Passions, Accenture, 200513 Mann et al, p. 914 Mann et al, p.315 Mann et al, p.716 www.tesco.com17 www.tesco.com18 www.tesco.,com19 Asda Group Limited, Datamonitor, June, 200520 Asda Wal-Mart a Corporate Profile, www.corporatewatch.org.uk, Nov. 200421 www.guardian.co.uk/business/story/0,1288594,00.html22 Th e mart Report Wal-Marts UK Strategy, www.npr.org, August 17, 200523 www.corporatewatch.org.uk, November 200424 www.sa insbury.co.uk Annual Report 200525www.sainsbury.co.uk Annual Report 200526 Barwise and Meehan(2004), Simply Better27 Segal M and Giacobbe R (1994), Market Segmentation and Competitive Analysis for Supermarket Retailing, International Journal of Retail and Distribution Management, p. 4528 Mann, Smith and Trouv, Consuming Passions29 tesco.com, press release on April 25, 2006