The research aims analyses the company Morrisons through PESTEL analysis, Porter’s five forces analysis, VRIN analysis, value chain analysis and core competences. PESTEL analysis reveals weak pound and low consumer spending, social factors reflect ageing population and new trends in the life cycle, technological factors reveal online and internet shopping preferences, self-scanning system use and new forms of payments. Environment factors suggest high awareness among the customers and need to reduce carbon footprints. Legal factors suggest followings of certain rules and regulations. These factors that may impact Morrisons reveal that they have strategies in place to cope with BREXIT impact and threat of entry for the grocery industry is low and threats of substitutes are high. Bargaining power of buyer is high but for suppliers it is low. VRIN analysis reflects company ability to process food products well and benefits of inimitability. Morrisons has the largest food supplier position and has a loyal customer base. The company has the ability to expand into wholesale market. The company plan to revitalise Safeway demonstrates the creation of wide range of fresh food products. Consumer spending though is a concern for the company because consumers prefer to shop wisely. The aging population also demands the company to add new products and services. Findings reveal that company should promote online shopping modes and payment system. For the environment dimension, Morrisons needs to reduce the carbon footprint continuously. Porter five forces analysis places Morrison in a favourable place in the market except for competitive rivalry and high bargaining power of customers. As Morrisons is placed fourth in the retail industry, competitive rivalry to a large extent is offset. VRIN analysis reveals company has fastest delivery speed and good PR and well-practised corporate social responsibility. It has excellent human resource and infrastructural system.
Morrisons PLC is the fourth largest company in the grocery retail sector in the UK and it is analysed to know the relative strengths and weaknesses for suggestions in improvement in performance. The report consists of PESTEL analysis, five forces analysis, VRIN analysis, and other analyses to identify opportunities and threats for Morrison.
Morrison Company has been having a strong presence in UK market with around 500 stores. It has a well-established delivery system. The company supplies grocery and food products with good quality. Company market sales grew by 1.7 percent and total revenue increased to 1.2 percent (BBC, 2017).
The current business environment which affects the UK food retailing industry is made up of both the macro environment and micro environment. The macro environment is the most general layer of the business environment that is made up of general environmental factors that impact all the supermarkets operating in the UK rather than just Morrisons. Many macro-level factors directly impact both Morrisons Plc as well as its rivals. The starting point for analysing macro-level influences is the PESTEL framework which can be used to identify how present and future trends in the political, economic, social, technological, environmental and legal areas will affect an industry and individual firms (Johnson, Scholes and Whittington, 2009).
Environmentally conscious consumer.
Food Production Policy.
Internet and online shopping.
Chip & Pin, Contactless and Apple Pay.
BREXIT – This will impact greatly on all businesses within the United Kingdom (UK). The UK has been a member of the European Union (EU) since 1973. Therefore, existing business structures and procedures have been formed due to decades of membership (Retailanalysis.igd.com, 2016).
Food Production Policy – Taking full advantage of food production throughout Europe was an aim of the EU from the beginning, as a result the Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP) were developed and introduced (Nielsen Brandbank UK, 2017).
Labour movement – The preservation of the status of current EU workers within the UK will be of immense importance to the grocery sector (Carroll, 2017).
Trade Terms – In 2015, 71% of UK grocery imports were from the EU. Given the scale of UK’s food trading, terms of trade will be a significant factor in determining long-term outcomes for the grocery retail sector and the consumer (Retailanalysis.igd.com, 2016).
Weak pound – In the aftermath of the Brexit vote in 2016, the pound sterling fell to its lowest in 31 years against the U.S. dollar (Retail Think Tank, 2017).
Consumer spending – The uncertainty surrounding the UK’s position in Europe will undoubtedly influence consumer spending, as it did in the aftermath of the 2008 financial crisis (Carroll, 2017).
The social factors aspect of PESTEL Analysis help the business organisation to understand the lifestyle trend of the nation, consumers attitudes and opinions about products and services, consumers buying patterns, culture, ethical issues, fashion trends as well as major events and influences that can impact the public(Schirmer, 2011).
· Aging population – Demographic changes are a major social factor that grocery retailers like Morrisons need to observe and react to.
· Lifestyle trends – People want to know where and how what they buy from the supermarket are produced.
· Internet and online shopping- British shoppers buy more food online than consumers anywhere else in the world – claiming that title for the second year in a row (Uk.kantar.com, 2017).
· Self-Scanning Systems – These systems currently have a positive effect on the industry by allowing customers to scan items themselves to avoid long queuing times while reducing the quantity of staff needed.
· Chip & Pin, Contactless and Apple Pay – This is a form of technology incorporated by the grocery industry to speed up the amount of time it takes for a customer to pay, allowing more sales per register over the course of a working day, while also being convenient for the paying customer(Euromonitor International Blog, 2017).
· Environmentally conscious consumer – Recent trends that are influencing UK food retail industry include the rise of ethically and environmentally conscious consumers who continually demand firms to adopt practices such as paper packaging and use of recycled materials (Mintel, 2014).
· Carbon footprint -The Climate Change Act 2008 was the foundation for the UK’s approach to tackling and responding to climate change. The Act also establishes the framework to deliver on these requirements (Committee on Climate Change, 2017). Morrisons reduced its carbon emissions by 12.8% over the past three years (Morrisons, 2017).
· Workplace Pension Legislation -Brought into force in 2014, the new workplace pension legislation requires deduction of pension contributors from a company’s full-time workers. (Mintel, 2017).
· Local Planning Permission – Looking at the legal aspects of the grocery retail industry, one of the main legal problems is that it faces legal implications such as obtaining local permission to open a store. Supermarkets, such as Morrisons do this by working with the local government agencies to offer employment opportunities, environmental and health standards (BBC News, 2017).
(For a more detailed PESTEL analysis please see appendix 1)
Porters ‘Five Forces’ Analysis
Using the ‘Five Forces’ framework can lead to the identification of attractiveness within a certain industry or sector. The five forces used are the threat of entry; the threat of substitutes; the power of suppliers; the power of buyers; and the extent of competitive rivalry within the industry. Wherever any of the forces are high the less attractive an industry is to compete in (Johnson, Scholes and Whittington, 2009).
· Threat of entry (LOW) – The supermarket retailing industry is highly competitive as it has four major players, which are Tesco, Asda, Morrisons and Sainsbury’s. Asda and Tesco are the leading players due to their financial strengths and cost efficiencies.
· Threat of substitutes (LOW) – Although there is almost six times the amount of convenience retailers than supermarkets in the UK, the threat of substitution is still relatively low. This is a result of customers seeking low priced, quality goods and being able to find these requirements more so in supermarkets than the slightly higher priced convenience alternatives.
· Bargaining power of buyers (HIGH) -Clients and customers are the Buyers of Morrison’s. Their bargaining power is very high due to the availability of several alternatives, this is good opportunity for Morrison’s because buyers will purchase products in high volume and substitutes are always available for Morrison’s buyers.
· Bargaining power of suppliers (LOW) – “The key players in the UK food industry are dominated, led and controlled by retailers to a large extent” (Howe, 2008 as cited in Robson et al, 2001, p 39).
· Competitive rivalry (HIGH) – There is a relentless battle between firms competing in the grocery retail industry, to gain customer share.
For a more detailed analysis see appendix 2.
· Value: Value is created by sourcing and processing most of the fresh food through the manufacturing units of Morrisons. It is the only supermarket in the UK to provide all lamb, beef and pork through only British sources (The Times, 2017). The firm has even banned Danish and New Zealand products from its shelves.
· Rarity: Morrisons is the largest food supplier with vertical integration in the UK. To ensure superior quality and freshness of meat, Morrisons is close to its suppliers such as Shorthorn. This is a major advantage for Morrisons since its competitors are not as quality conscious.
· Inimitability: Morrisons uses a unique customer patronizing style. As discussed earlier, by banning fake farm products entirely from its shelves, it has set an inimitable standard of social responsibility and patriotism.
· Non-substitutability: Due to the high quality of its own brands, Morrisons has become non-substitutable to its brand loyal customers.
Value Chain Analysis
Value chain analysis (VCA) is used to identify potential sources of economic advantage by suggesting how company’s core competencies can be combined with the external competitive environment to focus optimum resource allocation (Reese et al., n.d.).
For Morrisons VCA please see appendix 3.
Core competency recognises that competition between businesses is a race to succeed who will be the upcoming successful business. Prahalad and Hamel stated that there are three factors that need to be considered when the competition is high as a business need to ensure that they remain at the top of their competitors.
For Morrisons core competences see appendix 4.
Refer to appendix 5 for SWOT Analysis.
· Morrisons’ efficient supply chain and distribution network is a strength that can turn the opportunity of increased demand for UK produced goods, into a strength also. As they are the most vertically integrated out of the ‘big 4’ supermarkets, once the EU leave is official Morrisons will have an advantage over competitors.
· Online retail could potentially become an opportunity for Morrisons rather than a threat, if they cease the prospect available. Many people are moving to online shopping for convenience and it is an ever-growing market. By using their high customer focus and observing what customers request, an opportunity to gain knowledge and improve their online services is available. Since they sold many lower performing stores, Morrisons also has the capital available to invest into their online retail services.
· Morrisons can use their strength of skilled labour & high customer focus to minimise the threat of food production policy changes. As they already prepare over half of fresh food themselves, mainly instore by skilled workers, Morrisons can continue and expand on this in order to prevent the threat being severe.
· Morrisons previously had a lack of focused direction, this aided its threat of price competition. As they tried unsuccessfully to compete directly with Aldi and Lidl they lost customers as it was uncertain where and what Morrisons target audience and objectives were. However, since David Potts became CBE, he has successfully steered Morrisons in a positive direction. Balancing their price competition issues and directing a focused agenda.
This report concludes that Morrisons needs to improve its services and products affordability by continuous efforts towards finding cheaper sources of supply that do not compromise with quality. The company also need to ensure that threats of competitors and substitute products should be mitigated. It has to exploit its strengths such as improving the delivery system, offering more varieties of food products and promoting sustainable development initiatives (Stubbs, & Cocklin, 2008). Morrison needs to ensure that its environmental development initiatives and reduction in carbon footprints must yield good results (Perry, Klemeš, & Bulatov, 2008) and for this purpose, it is recommended that company should continue its focus towards environmental management. Utilizing their main strength of having the most vertically integrated supply chain within the grocery retail sector, is paramount, as the uncertainty of BREXIT affects the whole of the industry.