As requested by Management Skills unit coordinator, student ….. committed to produce UK food retail industry report by ………. Information was gathered from range of various sources, such as eJournals, industry databases, financial publications and Internet sources. Aim of this project to demonstrate knowledge and ability to analyse company’s and industry’s business environment, market trends and name important factors that will influence UK food retail industry direction in the next 5 years. Introduction One of the main objectives of this project is to analyse current situation in the UK food retail sector.
This part of report will examine Industry in general, by reviewing market size and scope, identifying key players. Second part of report will concentrate on UK Food retail market performance and emerging market trends. Last part of the project will review how market trends in current business environment will form strategic direction of the UK food retail industry during the next 5 years. Findings UK Food Retail Industry overview The Food Retail sector has been rapidly growing over the last decade.
According to the Mintel1 report published in October 2006, sales of UK food retailers were 106.5 billion (excluding VAT). The main UK retailers achieved their size through the growth in the market. Number of stores across UK has increased in the past years. By competing with each other Retailers developed a very good deal to UK consumer. Low prices assumed by consumer like a norm. Convenience and quality started to be major factors influencing consumer shopping decisions. Key players Over 70% of consumers in UK use four major retail chains to shop.
Tesco holds larger than others market share of 31. 8%, which makes Tesco dominant company in the food retail sector. Asda and Sainsbury’s have 16.8% and15. 8% market share respectively. The fourth by size National retailer Morrison’s have 10. 9% of market share. 2 These four Retailers have are well developed distribution channels across their supermarkets in the UK. Consumer profile Between four main retailers is highly competitive relationship, but their consumer class seems to be quite distinctive. Tesco appeals to all customer groups. However the core target audience is middle class, that group is important base for Tesco success in the future. Asda’s customers mainly are younger and middle age working class group who have lower income.
Sainsbury’s consumer class over last few years got older. Sainsbury is trying to win share of middle class consumers. Morrison’s costumer audience is the most diverse. Morrison’s core market got older after the merger with Safeway. Store formats Changes in lifestyle and shopping habits are reflected by diversification of stores formats. Tesco and Sainsbury’s aggressively entered convenience store sector, by creating smaller central location shops. However, Tesco and Asda continue to expand their food and non-food superstores. Market performance
UK food retail industry was growing fast in the past years, but currently it entered in to mature stage of the business cycle. Increase of sales is slowing down. Major retailers can not expand anymore through the industry growth. They need to consider other options. Supermarkets already started to diversify their business by increasing new lines of non-food products and variety of services available in-store. Expanding non-food ranges can be a driving growth factor. Emerging market trends To ensure efficiency and success in the business Industry players need quickly respond to market changes.
As population in UK is ageing, home shopping sector will be important part of selling. Current market research 3 shows that three in five households (62%) have internet at home and three quarters of them have broadband connection, which encourages high speed browsing. Economic factors have a crucial impact to the industry. Rising interest rates may affect consumer disposable income. On the other hand according to Mintel 4 source in 5 years to 2007 consumer expenditure changed from i?? 690,5billions to i?? 851,6billions and it is forecasted that in 2012 expenditure will increase to i?? 1022,5billions.
The right use of this information can shape new strategy for UK food retailers. Competition Commission role Recently published Competition Commission report 5can be interpreted by some major players as an arising opportunity to gain bigger market share. Morrison’s supermarkets management favours the idea of land bank site selling by rival companies. It will enable Morrison with opportunity to enter new geographic regions. However some parties critically evaluated this publication. In ‘Economist’ article6 the suggestion is carried out, that investigation did not reflect real relationships between retailers and suppliers.
With just four main players current competitive nature in the Food Retail Industry can be easily changed to the oligopolistic cooperation. That is why the regulations by Competition Commission are necessary to insure fair treatment of consumers. Factor determining strategic direction of UK Food Retail Industry Some of the Big four Retailers already diversified their products and services and added different lines of their own brand products. Retailers are consistently expanding their non-food product ranges. By overtaking other industries market share major food retailers can insure their growth.
Current threat of rising substitutes industry (restaurants, take away ect. ) made retailers to increase a range of “ready to eat” products, these trends will continue in the future. In the past year major players, except Morrison’s Supermarkets launched online shopping services. Although this decision did not bring expected profit to some of them, the percentage number of service users gradually increased. Scope to improve online services will bring long term benefits.
Encouraging consumers to shop in different ways (online, catalogue, etc.) will make it part of the offer delivered by Retailers. Conclusion Major four UK food retailers improved their service through differentiation of products and services. High entry barriers in to the industry insure strong position of dominant retailers. As a result increasing power of the key players continues to be the main driver for UK Food Retail industry. This report contains important factors and trends of current situation in UK Food Retail industry. Some findings mentioned in the report are opportunities, which can be used by major retailers.