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Retail Grocery Sector
Retail Grocery Sector
Market value of
grocery retail in
the United
Kingdom (UK)
from 2004 to
2020
It was only the German discounter Aldi that saw rapid growth and has
proven to be a significant disruptive force on the market. On average,
the monthly UK grocery basket for June 2018 had a value of 85.64
pounds. This constitutes a stagnation since the end of Autumn 2017.
Financial Performance: • IGD data highlights that food and grocery sales are
worth £179.1bn (50.2% of total retail sales)
• The UK exports market was worth £304.4bn in 2016,
of which food and drink exports accounted for
£18.4bn with opportunity for this to grow even
further
Profit Profit Basic • Last year, almost two-thirds of UK food and drink
52/3 before for earnings exports were to the EU
weeks Turnover tax year per share • The UK exported £7.5bn worth of food and grocery
Firm ended (£m) (£m) (£m) (p) goods to non-EU countries in 2016
• The industry employs 3.9 million people spanning
Tesco 29-Feb-20 64,760 1,315 973 9.99 farming, manufacturing, wholesaling, retailing and
catering, plus even more indirectly through all the
Sainsbury's 31-Mar-20 28,993 255 152 13.00 service providers to our sector
• IGD data highlights the food-to-go market was worth
Asda 30-Apr-20 20,313 372 285 11.99
£16.1bn in 2016, and five key segments make this up
Morrisons 31-Mar-20 17,500 201 128 4.92
The number of food suppliers (to supermarkets) struggling to remain in business has
increased by more than 50% over the past year as supermarkets engage in an intense
price war. It has never been tougher for the UK’s food suppliers according to a study by
accountants Begbies Traynor. It blames aggressive price-cutting by the supermarkets
and delays in payments to food suppliers as the main causes of the difficulties. Further
problems include food suppliers being forced to pay excessive amounts for packaging
specified by supermarkets and funding in-store promotions. Almost 90% of struggling
food suppliers are small and medium-sized businesses. The price war has contributed to
food prices paid by consumers falling by 1.7% over the past two years
Internal Growth
Analysis
o The takeover is Tesco's first major external growth move since CEO Dave Lewis joined.
o Example of backward vertical integration as Tesco has acquired another firm behind it in the process (Retail
Manufacturer)
o The key part to the deal seems to be Tesco's drive to increase market reach to the out-of-home food market. They will
have market reach across stores, Booker's national Cash & Carry network, their home/business delivery capacity and
Tesco's own Click & Collect.
o food suppliers are concerned that the new food giant may have greater negotiating power and be in a position to abuse
its monopsony power. In the past, supermarkets have been accused of pushing the price of milk below cost, for example.
Tesco – External growth
model
• Being the largest grocery retailer at UK, Tesco has a brand value that most of the
competitors are feared of. According to a research done by Intangible Business (2008),
Tesco has the most valuable brand value in the grocery field. The company is always
associated with fine quality and trustworthy goods that represent excellent value for the
customers. Similarly, the innovative ways of improving on customer shopping
experience has capitalized on this.
• the strong financial performance of Tesco has made the company globalizing expanding
its businesses around the continents. Tesco could enter a market easier compared to
smaller competitors due to the large backup of financial resources. On top of that, the
ever increasing market is undoubtedly one of the greatest strength of Tesco. The revenue
of Tesco shows no sign of abating and it is predicted that Tesco’s international business
segment will grow even more in the future.
• However, the main weakness of Tesco today is the lack of geographic diversification.
From the table above, it can be seen that most of the revenues generated are from UK
itself. The reliance on UK market is very high and while this isn’t a major problem in
the short term, any changes in the UK market could alter the balance of UK hypermarket
power and affecting share. This happened on the 2004, when Morrisons had successfully
acquired the Safeway chain and became the fourth largest retailer on UK.
Booker business in focus
Firms displaying both types of Growth….
Industry revenue is expected to continue expanding
over the next five years. An anticipated increase in
household disposable income leading to higher
Growth of online expenditure is expected to spur demand for
online grocery retailers over the coming period.
firms – Online grocery shopping is expected to become
more popular, and this change in shopping behaviour
Forecast
is likely to become more entrenched due to the
improving convenience of purchasing goods
remotely. Operators are expected to continue
[2021 – 26] investing significantly in warehouse technology,
home delivery and forming closer relationships with
companies which offer distribution networks and
applications
Contraction of firms
• In April, Tesco reported a record £6.4bn loss, though the retailer claimed it was on the road to
recovery. The following month, Asda revealed its worst sales figures since the 1990s, while in
June, Sainsbury’s revealed its sixth quarter of falling sales. Even upmarket Waitrose has been
feeling the pain; it recently started giving loyalty card shoppers money off their favourite
items, and indicated it would split the bill for this scheme with suppliers that had signed up.
• Morrisons calls for action on lorry driver dearth [28 Aug]
#The Road Haulage Association has previously estimated there is a shortage of more than 100,000 drivers in
the UK, out of a pre-pandemic total of about 600,000.
#The group, which includes the British Meat Processors Association, Food and Drink Federation, Road
Haulage Association and UK Hospitality has called on the government to bring in a special 12-month Covid-19
Recovery Visa to help alleviate staff shortages in the supply chain.
#The group said this would allow the supply chain to recruit people into critical roles, such as HGV drivers, in
the short term.
#Last month, Tesco announced it would pay a £1,000 joining bonus to lorry drivers, and other firms have taken
similar steps to recruit and retain staff.
#Friday's food and drink industry report pointed out that many of the firms that had provided information had
increased wages, offered bonus schemes, extra holidays and other measures designed to attract and retain staff.
General trend / Market research
Over 25 % of Tesco’s stock
is large selection of
persishable e.g. fruit and
veg, it was vital that
they implement a robust
intelligence
infrastructure. dairy, it
reduced waste in stores and
reduced stock piling
Top Competitors
Sainsbury’s