UK supermaket industry

UK supermaket industry

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  1 THE UK SUPERMARKETINDUSTRY By SAMUEL GIBBS
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  2 The UK SupermarketSector Introduction The supermarket is one of the main economic sectors in the United Kingdom. This paper presents a STEEPLE analysis on this sector with an aim of establishing its current status. The analysis reveals that the UK supermarket sector has encountered uncertainties, in the recent past, caused by declining consumer spending, globalization, growth of online shopping, slowed economic growth, negative balance of payment, high inflation and unemployment and development of a stringent regulatory environment. STEEPLE Analysis Social The social environment encompasses lifestyle and demographic factors that are likely to affect the performance of the industry. Decline is consumer spending power is one of social factors that have had a major impact on the UK supermarket industry. Performance of supermarkets is highly dependent on consumer’s income and willingness to buy. High rate of inflation and unemployment has reduced the spending power of UK consumers. Consequently, consumers are spending less on supermarket products. In January 2014, Morrison Supermarket issued a profit warning sighting the declining spending power of consumer as one of the chief causes for the decline in the supermarkets profits (Butler, 2014). Globalization is another social factor that has influenced the UK supermarket industry. Globalization is a phenomenon where world societies become increasingly interdependent and unified (Hanley, 2011). Globalization has affected the UK supermarket industry both directly and indirectly. Globalization has exposed UK supermarket to competition from foreign multinational such as Asdas. Globalization has also affected employment rate, cost of living, equality and inclusion within the UK society. This has an indirect impact on supermarkets.
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  3 UK Inflation Rate Source:Office of National Statistics Technological Online shopping is one of the technological factors that have made a momentous impact on the UK Supermarket industry. Statistics indicate a substantial increase in online transaction within the industry. According to Butler (2014), online shopping accounted for over 15% of UK grocery sales in the month of December 2013. This percentage translates to revenues worth £900 million. Online sales have been driven by advancement of technologies such as smart phones, tablet computers, which customer use to buy from any location. Online shopping has led to an introduction of new business models such as convenience stores, delivery service and virtual pure plays (Yousept & Li, 2004) Economical Demand for supermarket products has gone down due to inflation. According to Bulter (2014) food inflation stood at 2.5% in the month of December 2013. Consequently, customers purchased few food products in order to save money. Morrison and Tesco recorded declines in sales of food products. High prices of petrol have also encouraged online shopping. Customers have shifted to online shopping in order to save money from the purchase of petrol. Morrison
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  4 main store recordeda decline of 5.6% while its convenient stores have recorded significant growth in sales. There is a positive outlook for the industry as, in 2013, the country recorded the lowest unemployment rate in five years. The market structure of the UK supermarket industry is that of monopolistic competition. The industry comprises of numerous competitors with distinct brands and services. Competition in the industry is fierce. The market is dominated by five major players; Tesco, Safeway, Morrison, Asda, and Sainsbury. The five players control 72.5% of the market share (Seely, 2012). Environmental This element is concerned with how environmental issues affect the performance of supermarket. Environmental consciousness is one of the factors that have affected the operations of supermarket. The UK population has become very conscious of the environment and environmental issues (Moncure & Burbach, 2013). This consciousness has been brought about by high levels of education and concerns generated by environmental issues such as global warming. Consequently, consumers are exerting pressure of business organization to act responsibly towards the environment. This implies that supermarkets have to incur additional cost in making their systems and process environmentally responsive, maintain a favorable image among customers. Some supermarkets have gone a step further and are using
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  5 environment issue tocreate a competitive advantage. These firms are investing in technologies and systems that protect the environment in order to establish a favorable position within the market. Environmental laws and regulations are also significant factors in the supermarket industry. Environmental phenomena such as global warming have elicited concern from governments and other regulatory authorities. This concerned has resulted in the establishment of stringent environmental laws and regulations. Consequently, supermarkets are incurring high costs in trying to ensure that they comply with laws and regulations. Political The political element of the framework is concerned with how political regimes within the country affect the performance of the supermarket industry. Legislations are the most significant political factors that affect supermarket industry. In the recent past, the government has enacted various legislations that have an impact on supermarkets. Grocery Codes Adjudicator Act 2013 is one such legislation. The Grocery Codes Adjudicator Act 2013 was established to control the interaction between supermarkets and suppliers (The UK Government, 2013). It seeks to ensure that large supermarkets do not abuse their power over suppliers. The UK government is also planning to introduce legislation for curbing price wars among supermarkets (O’Brien, 2013) The political environment can also affect supermarkets indirectly by influencing the social and economic environment (Deloitte, 2012). The political environment has a significant influence on economic policies such as government spending and taxation, and social policies within the country. This implies that the political environment has the potential of influencing social and economic factors that affect supermarkets. Legal The legal environment comprises of laws and legal matters that have the capability of affecting the operations of supermarkets. There are numerous laws that affect supermarkets
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  6 including antitrust laws,capital market laws, environmental laws, labor laws, and food and safety laws among others. Supermarkets have to comply with these laws in order to avoid adverse consequences such as fines, deregistration, imprisonment of staff, and many others. Ethics Ethics refer to behaviors that acceptable within a given society. Unlike laws that are founded on legislations and statutes, ethical principles are founded on societal values, norms and beliefs (Fox & Vorley, 2004). Supermarkets have an obligation to adhere to the ethical principles of societies in which they operate. Food wastage is one of the ethical issues that have confronted supermarkets in the recent past (Smithers, 2013). Supermarkets have been subjected to increased pressure in order to reduce food wastage. Unhealthy food is another ethical issue that has confronted supermarket. Supermarkets have faced significant criticism for promoting the consumption of unhealthy foods through advertisements (Burns, 2012). Today, supermarkets are under pressure to reduce consumption of junk foods. Recently, Morrison supermarket had to substitute sweets with fruits at the exit points of the supermarket’s stores. Linkages and Evaluation There are significant linkages between the STEEPLE factors. For instance, consumers’ spending power, which is a social factor, is influenced by the economic and political environment. Similarly, economic factors such as inflation and unemployment rates are influenced by political factors such as monetary policies and development policies. The political environment also has a significant influence over the legal issues that affect the supermarket sector. The main significant factors affecting the supermarket industry are political and economic factors. These factors can be considered critical because they have a substantial effect on operations of supermarkets and other STEEPLE factors. The political and economic factors influence legal issues such as taxation, social issues such as income trends, environmental issues such as environmental laws, and many other factors.
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  7 How Human Resourcein the Supermarket Industry has been influenced by Environmental Contexts Human resource management refers to activities involved in the recruitment, hiring, compensation and development of employees. It is an important facilitating function in all organization. This section describes how human resource management practices within the supermarket sector have been influenced by the environment forces within the sector. Example 1: Strategic HRM at Tesco Strategic human resource management (SHRM) is one of the practices that have been motivated by the environmental forces operating in the supermarket industry. As the STEEPLE analysis reveals, supermarkets are operating in a high level of uncertainties due to high inflation, high unemployment rates, globalization, low economic growth, and declining spending power of consumers. Consequently, organizations have to established ways of entrenching their position within the declining market and competing against fierce rivals. Supermarkets are under pressure to reduce cost and enhance their appeal, in the market. SHRM is one of the approaches that supermarket are using to reduce cost and enhance their position in the market. SHRM is a concept that focuses on using the organization human resource in realizing the firm’s strategic goals (Caliskan, 2010). This concept seeks to use the organization’s human resource to create a competitive edge. The SHRM concept is founded on the belief that employees can be a significant and sustainable source competitive advantage (Shaikh, 2012). This is because human resource strategies make it difficult for other organization to replicate as they involve the interaction complex elements such as organizational cultures and values. Supermarkets are now using their human resources to develop specific competencies that help them to compete. Tesco is one such supermarket. Tesco is among the largest and oldest supermarkets in the United Kingdom. The organization is largest private employer in the UK (Wilton, 2010). In Tesco, the human resource is considered the most valuable asset of the organization. Tesco believes that the success of
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  8 the organization dependon the people they work with and the people who shop on the organization (Wilton, 2010). This statement reveals the central role given to human resource within the organization. Tesco has invested a lot of resource in training and development of employees. Tesco believes that the best way of getting the highest return on investment made on employees is through training (Gulyaz, 2011). Tesco has placed a significant emphasis on training and managing the development of its employees. Tesco has developed a number of training programs for its operational employees including; introduction training; first serve training; hygiene training, and multi skill training (Gulyaz, 2011). The organization has also developed training programs for managers including core skills; the emotional cycle change program; team building; manning resistance; plan-do-review program; coaching and feedback, and many others. Another initiative by Tesco in order to ensure that they develop an effective workforce is providing competitive pay and benefit packages (Wilton, 2010). Wages and benefits are extrinsic motivational factors for employees (Nohria, Groysberg, & Lee, 2008). Tesco offers a number of benefits including paternity and maternity leaves, shift swaps, job shares, and career breaks. The firm has share ownership scheme that has shared out £220, in March 2013. These benefits and reward factors enable the organization to attract and retain the best talent. Tesco has also developed various initiatives for empowering their employees. Developing mechanisms through which employees can share their views with the management team is one of these initiatives (Tesco Corporation, 2011). This initiative has enabled Tesco to enhance innovativeness by harnessing diverse views of employees. It has also enhanced level of employee motivation by developing a sense of ownership among employees. When employees are given an opportunity to make a significant contribution towards the organization, they tend to cultivate a strong feeling of ownership and belonging. Tesco has also established a relationship of partnership with the employees’ union in order to make optimal use of the human resource (Wilkinson, 2010). Many organizations are often unable to make optimal use of their employees
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  9 because they adoptan adversarial relationship with unions. Consequently, these organizations are engaged in regular conflicts with employees, which have a significant impact on productivity. Example 2: Downsizing at Waitrose Another human resource practice that has been influenced by the environmental context is downsizing. Downsizing refers to deliberate actions by the organization to reduce the scale of its operation in order to improve effectiveness and efficiency (Ritchner & Ahlstron, 2006). UK supermarkets are opting to shift from large scale supermarket store to small scale local stores. This trend is motivated by rapid expansion of online shopping within the UK market. According to Bartholomeusz (2014), the growth of online shopping in the UK has stunned players within the retail industry. Retailers are now focusing on developing IT platforms and delivery channels associated with the online business model. This model favors the establishment of convenient stores as opposed to mega supermarket. One of the supermarkets that have been affected significantly by this trend is Waitrose. According to Finch (2008), Waitrose was planning to downsize its operations by establishing new half-size stores in market towns. The new stores would concentrate on providing fresh food. Witrose move is intended to improve the organization efficiency in delivering services to online shoppers. However, the move has a significant impact on the organization’s human resource. It implies that the organization has to develop a lean and highly fragmented workforce. Conclusion The supermarket sector is a critical component of the UK economy. The sector provides employments to millions of people and makes significant contributions to the economy. This paper has analyzed the current status of the UK supermarket status using the STEEPLE framework. The analysis revealed the UK supermarkets are operating in high levels of uncertainty brought about by diminishing spending power of consumers, globalization, growth of online shopping, high inflation and unemployment, increased environment awareness and
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  10 regulation, as wellas, a stringent regulatory environment. This environment factors have led to the development of various human resource practices including strategic human resource management and downsizing.
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  11 References Bartholomeusz, S. (2014).UK Retailers Embrace Online Sales. Retrieved from http://www.theaustralian.com.au/business/opinion/uk-retailers-embrace-online- sales/story-e6frg9if-1226799315916# [Last Retrieved February 26, 2014] Burns, J. (2012). Sweets at Supermarket tills Undermine Healthy Eating. BBC News. Retrieved from http://www.bbc.co.uk/news/education-17831265 [Last Retrieved February 26, 2014] Butler, S. (2014). Morrisons Issue Profit Warning. The Guardian. Retrieved from http://www.theguardian.com/business/2014/jan/09/morrisons-profit-warning-discount- christmas-aldi-lidl [Last Retrieved February 26, 2014] Butler, S. (2014). Ten Things Christmas taught us About the UK Retail Revolution. The Guardian. Retrieved from http://www.theguardian.com/business/2014/jan/12/10-things- christmas-taught-us-about-uk-retail-revolution [Last Retrieved February 26, 2014] Caliskan, E. (2010). The Impact of SHRM on Organizational Performance. Naval Science and Engineering Journal. 6 (2): 100- 116 Deloitte (2012). Analysis of the Grocery Industry. Retrieved from http://www.coles.com.au/Portals/0/content/pdf/Shareholders/Grocery%20Industry %20Report.pdf [Last Retrieved February 26, 2014] Finch, J. (2008). Waitrose looks to Downsize in Market Towns. The Guardian. Retrieved from http://www.theguardian.com/business/2008/may/03/johnlewis.supermarkets[Last Retrieved February 26, 2014] Fox, T. & Vorley, B. (2004). Stakeholder Accountability in the UK Supermarket Sector. Retrieved from http://pubs.iied.org/pdfs/16003IIED.pdf[Last Retrieved February 26, 2014] Gulyaz, L. (2011). Training and Management Development at Tesco. Retrieved from http://www.mnmk.ro/documents/2007/2007-18.pdf [Last Retrieved February 26, 2014]
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  12 Hanley, T. (2011).Globalization, UK Poverty and Communities. Retrieved from http://www.jrf.org.uk/sites/files/jrf/poverty-community-globalisation-summary.pdf [Last Retrieved February 26, 2014] Li, E. (2008). Supermarket Chains and Grocery Market in the UK. Retrieved from http://www.ceibs.edu/bmt/images/20100319/23714.pdf[Last Retrieved February 26, 2014] Moncure, S. & Burbach, M. (2013). Social Reinforcement of Environmentally Conscious Consumer Behavior. Management and Sustainability Journal. 3 (4): 14-24 Nohria, N. Groysberg, B. & Lee, L. (2008). Employee Motivation. Harvard Business Review O’Brien, T. (2013). New Law to Combat Supermarket Price Wars. The Irish Times. Retrieved from http://www.irishtimes.com/news/ireland/irish-news/new-law-within-weeks-to- combat-supermarket-price-wars-1.1631707 [Last Retrieved February 26, 2014] Ritchner, A. & Ahlstron, P. (2006). Organizational Downsizing and Innovation. Retrieved from http://swoba.hhs.se/hastba/papers/hastba2006_001.pdf[Last Retrieved February 26, 2014] Seely, A. (2012). Competition Inquiries into the Groceries Market. Retrieved from http://www.google.com/url? sa=t&rct=j&q=&esrc=s&source=web&cd=9&cad=rja&ved=0CF0QFjAI&url=http%3A%2F %2Fwww.parliament.uk%2Fbriefing [Last Retrieved February 26, 2014] Shaikh, M. (2012). Strategic Human Resource Management. Retrieved from http://shodhganga.inflibnet.ac.in/bitstream/10603/3780/10/10_chapter%202.pdf[Last Retrieved February 26, 2014] Smithers, R. (2013). UK Supermarkets face Mounting Pressure to cut Food Waste. The Guardian. Retrieved from http://www.theguardian.com/business/2013/oct/21/uk- supermarkets-pressure-cut-food-waste [Last Retrieved February 26, 2014]
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  13 Tesco Corporation (2011).Tesco Corporation Code of Conduct. Retrieved from http://www.tescocorp.com/data/1/rec_docs/562_TESCO%20Code%20of%20Conduct. Final.08.05.19.pdf [Last Retrieved February 26, 2014] The UK Government (2014). Groceries Code Adjudicator Act 2013. Retrieved from http://www.legislation.gov.uk/ukpga/2013/19/pdfs/ukpga_20130019_en.pdf[Last Retrieved February 26, 2014] Wilton, N. (2010). An Introduction to Human Resource Management. Retrieved from http://www.uk.sagepub.com/wilton/Instructor's%20Manual/Chapter%205.pdf[Last Retrieved February 26, 2014] Yousept, I. & Li, F. (2004). Emerging Strategies and Business Models in the UK. Retrieved from https://domino.fov.uni-. mb.si/proceedings.nsf/0/14a2c9e1e988dccac1256ee000272c96/$file/03yousept.pdf [Last Retrieved February 26, 2014]