3. Opening thought…
“A person buying ordinary
products in a supermarket is in
touch with his deepest
emotions”
JK Galbraith
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4. Strategy Toolkit Contents
• Introduction
• Thinking strategically
• Strategic analysis of Morrisons’ business
• Strategic options for Morrisons
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5. Introduction
• This presentation reviews the market for supermarkets and takes you through
the key corporate strategy issues facing Morrisons, a public limited company
listed on the London Stock Exchange with its headquarters in Bradford,
Yorkshire
• It is important to remember that, in corporate strategy analysis, there are no
right or wrong answers – just problems that need addressing and choices that
have to be made
• The views and opinions expressed in this document are just our opinion.
Hopefully you will find them helpful. However, don’t forget that you need to
form your own views – and be ready to explain and justify them in your Unit 4a
examination paper
• Print this presentation out and add your own notes to it as you work through the
case study or download it onto your laptop and annotate it
• There are some suggested web links at the end of the presentation for you to
follow up as part of your detailed research programme
• Above all – remember that Unit 4a is about:
– Thinking strategically
– Thinking “big picture”
– Thinking “synoptically” – i.e. recognising that strategy issues are not just about
marketing or finance or production – but about inter-related issues
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6. Morrisons and this Toolkit
What We Have Done
• Worked carefully through the case study – like you should too
• Analysed the data, read between the lines – and presented the key features
• Added some information to bring the case study up to date for 2010
• Linked the analysis to the new Edexcel specification for Unit 4a
• Identified what we believe are the key strategy issues raised by the case study
• Outlined the strategic options open to Morrisons
• Evaluated the strategic decisions that could be made
What We Have Not Done
• Question-spotted what we think the Unit 4a examiner might ask. Examiners have a habit
of asking tricky questions. In any event, you need to answer the questions actually set,
not the ones you want to be asked
• Repeated all the details of the case study (there is no value added in doing this and you
need to read it too!)
• Repeated all your textbook, class, VLE and revision notes on corporate strategy (refer
back to these as necessary)
• Provided lots of notes on corporate strategy concepts – your textbook, VLE and class
notes should cover those fine. You need to get thinking about supermarkets!
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7. How to Work Through This Presentation
Read the Morrisons case study carefully;
study the words; look at all seven pieces
Step 1 of Evidence (A to G); form your initial
views on the business – positive and
negative.
Step 2 Read our advice on “Thinking
Strategically”
Go back to the case study and re-read it.
Try to identify what you think are the key
Step 3 strategic issues.
Read our sections on the Analysis of
Morrison’s Business and our thoughts
Step 4 on the Strategic Options for Morrisons
Summarise the key points from this
Step 5 presentation in your own revision notes
(or scribble all over it) so that you are
fully prepared for the Unit 4a paper
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9. Thinking strategically means imagining YOU are sitting at the Morrisons
boardroom table in Bradford with Dalton Philips, the new Chief Executive,
who replaced Marc Bolland in January 2010
Your business lunch will probably come from Market Street, hopefully
fresh, possibly organic. Your role now is to choose from the menu of
options to help Morrisons navigate the intensely competitive world of
supermarket retailing. Food for thought…
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10. Directors do not concern themselves with day-to-
day operational details – neither should you
Dalton Philips is concerned with questions like…
What is our How are we doing?
What strengths
business mission? Can we survive
and weaknesses
What are our goals with our current
do we have?
and objectives? strategy?
What resources do
What are our
we need? How
competitors
should we finance
doing?
them?
Are the same
What external How do we exploit
actions in the best
factors influence the opportunities
interests of all the
our business? available?
stakeholders?
Think about these questions as you work through the case study
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11. Corporate Strategy involves taking decisions
• Decisions often need to be taken
quickly
• Decisions involve risk – but a
business can never move forward
unless it takes risks
• Information is never perfect,
complete or always up-to-date
• The Unit 4a evidence needs to be
considered in detail and data must
be interpreted with a critical eye
• Think about the decisions that
Dalton Philips needs to take. What
information does he need?
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12. Be careful with your SWOT Analysis – don’t
believe management hype!
Strengths
…these are ONLY factors where a business
has a real competitive advantage. Just
being good at something is NOT a strength if
your competitors are good at it too! Most
businesses have only a few strengths. Some
don’t have any.
Weaknesses
…in reality, these are the things that really
stop a business from succeeding. Most
businesses have some fundamental
weaknesses – but management often ignore
them (and rarely admit them). Your job is to
tell it as you see it.
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13. All businesses have problems – but they are
rarely as bad as they look
Not every problem or issue described
in the Morrisons case study is really
important. Don’t get too bogged down
by what look like numerous issues.
Good management is about sorting
things out
Try to identify the really important
issues, problems or challenges facing
Morrisons. These are the strategic
challenges that the company must
address
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15. Market Overview: Supermarkets
Market Size
• The UK grocery market is worth £97B
• The market is growing fast at 20-25% pa by volume
• 12.8% of consumer income is spent on groceries, which makes it the third most essential
item of household spending behind housing costs and transport costs
• 49p out of every £1 in retail spending is on groceries
Market Structure
• Supermarkets contribute over 3% of the FTSE 100 Index by market capitalisation
• The “Top 4” of Tesco, Asda, J Sainsbury and Morrison have a 79% market share between
them, giving the market the characteristics of an oligopoly.
• It is hard for new players to enter the market and most growth has come from organic
development of new stores or from consolidation through competitor acquisitions
Customers
• Supermarket retailing is all about reacting to markets and understanding what consumers
want. The three key buying criteria in the market are
– Price (value for money)
– Convenience (location)
– Freshness (quality)
• During the current, tough economic climate, fewer consumers are eating out which has
prompted a rise in sales of ‘cook at home’ ranges
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16. The Volume Competitors
• Tesco Plc.
The UK's largest and most successful supermarket chain, with a market share of 31%. Tesco operates
2,500 stores in the UK with a range of shopping formats including Tesco Extra, Tesco Superstore,
Tesco Metro, Tesco Homplus, One Stop and Tesco Express. The range of stores has strengthened
the company's ability to cater for 'top up solutions' as well as the weekly family shop. Tesco also has a
growing international presence in Europe, America and China and an extensive range of non food
items available both in store and online. It cannot expand further in the UK by acquisition due to
Competition Commission rules on monopolies.
www.Tesco.com
• Asda Group Ltd.
In the model of Wal-Mart, the US retail giant which bought it in 1999, Asda’s business is more focused
on hypermarkets and out-of-town stores than the other UK chains. Asda has specialised in bulk selling
at low prices since it was established in 1965. Like Tescos, Asda has a strong non food range. Its
market share is currently 17% and it is in the process of buying the Netto chain’s 193 outlets for £778M
which will push its share of the market up further, giving it a total of 566 stores.
www.asda.co.uk
• J Sainsbury Plc.
Sainsburys has a good image in the UK and is seen as a more upmarket supermarket than Tesco and
Asda. It has 537 superstores and a further 335 convenience stores and a market share of 16%. The
supermarket chain bills itself as focusing on quality rather than price. It has an online business, a
strong non food range and also runs a bank.
www.sainsburys.co.uk
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17. Some Smaller and Niche Competitors
• Waitrose – owned by the John Lewis Partnership, Waitrose is an up-market supermarket chain that currently has 228
branches in the UK. It has a market share of around 4%. It differentiates itself through high quality food and customer
service.
www.waitrose.com
• Marks & Spencer – M&S has over 700 stores in the UK. Like Waitrose, it positions itself towards the up-market end of
the grocery spectrum. Besides food sales it has a strong range of non food items, especially clothing. It has a grocery
market share of less than 2%.
www.marksandspencer.com
• Iceland – owned by the Icelandic retail conglomerate, Baugur. It has about 700 locations and sells primarily frozen
products. It has a market share of about 1.8%. In 2009 it purchased 51 stores from the failed Woolworths chain.
www.iceland.co.uk
• The Co-operative Group – The Co-op has a total market share of around 8%. It is the world’s largest community
owned business with 4.5M members and it is the UK’s largest community retailer, specialising in convenience stores
and small supermarkets. It has 123,000 employees and, in 2009, it acquired Somerfield, to make it the fifth largest
supermarket in the UK .
www.co-operative.coop
• Lidl - owned by the German company Schwarz it has about 500 stores in the UK. It follows the European-based,
heavily price discounted format. It has a market share of 2%.
www.lidl.co.uk
• Aldi – another German owned UK price discounter owned by the Albrecht family (and named after the acronym
ALbrecht DIscount). It has 422 stores in the UK and a market share of 3%.
www.aldi.com
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18. Market Shares in the Supermarket Industry
35
30
25
20
15
10
5
0
Others includes Marks and Spencer, Budgens, Costcutter, Spar etc
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19. Market Strategies seen in the industry so far
Four strategic approaches (as defined in the Ansoff Matrix) have been
deployed in this sector in order to generate sales growth:
• Market Penetration in the UK
– Building additional store space or extensions and growing organically
– Acquiring competitors in order to raise market share (e.g. Co-op/Somerfield)
• Market Development to access new customers in
– Overseas markets (e.g. Tesco, M&S)
– The convenience store sector (e.g. Tesco Express, Sainsburys)
• New Product Development
– Online food sales and home delivery (e.g. Ocado)
• Diversification into non food sales
– Clothing, electricals, fuel, financial services etc (e.g. Asda, Sainsbury,
Tesco)
Many of Morrisons rivals have developed strategies that are broader and
more diversified than Morrisons’ core offer of food and groceries (plus fuel)
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20. A Brief History of the Development of Morrisons
• In 1899, William Morrison, an egg and butter merchant, started Morrisons from a market stall in
Bradford, Yorkshire
• In 1958, his son and successor, Ken Morrison , opened the first Morrisons self-service store in
Bradford city centre
• In 1961 the first Morrisons supermarket was openend, measuring 5,000 sq ft.
• In 1967 it became a public limited company listed on the London Stock Exchange
• By the end of the 1980s, Morrisons operated 46 stores across England , most of which were
located in the North of England near the company’s Yorkshire base.
• By 1999, 100 years after its inception, Morrisons had 100 stores
• In 2004 Morrisons acquired Safeway (nearly doubling its market share) to become the UK’s
fourth largest supermarket with a greater presence in the South of England due to the location
of many Safeway stores. All 479 Safeway stores across the UK were re-branded under the
Morrisons name in a move which finally gave the retailer a national presence. The acquisition
did not go smoothly, the integration took time to take effect and profits fell. The Safeway to
Morrisons store conversion process was the largest of its kind in British retail history.
• In 2008, Sir Ken Morrison announced his retirement from the business after more than half a
century at the helm. His 55-year career had seen him transform his father’s small market stall
into a £13 billion nationwide supermarket chain. The family retains a 15% stake in the business
• In 2009 Morrisons acquired 35 ex-Somerfiield stores from the Co-op giving it an additional
£400M of annual turnover
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21. Morrisons Today
• Wm Morrison Supermarkets PLC is a UK based company engaged in the business of
food and grocery retailing. It is the UK’s fourth largest supermarket and is in the top 50
FTSE index of UK companies by market capitalisation. It has:
– 425 stores
– 131,000 employees
– 10 Million customers per week
– an annual turnover in excess of £15 Billion
• Sales growth has outpaced larger rivals such as Tesco and Sainsburys in recent years
• It was named Retailer of the Year in both 2008 and 2009.
• Morrisons has a unique culture, a mix of the heritage and tradition handed down from
William and Ken Morrison coupled with today’s modern professionalism injected by the
new chief executives Marc Bolland and, now, Dalton Philips.
• Today, and for the first time for 110 years, no member of the Morrison family is in an
executive or board room role.
• Morrisons has transformed from a budget, pie selling, traditional Northern retailer to a
more professional, national organisation with broad appeal.
• www.morrisons.co.uk
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22. Morrisons’ Current Corporate Strategy
• Morrisons’ Vision is “To be food specialist for everyone”
• Its three brand values are
1. Fresh – owning its vertically integrated supply chain and selling food that is freshly prepared in store. It is the
most vertically integrated food retailer in Britain, owning abattoirs, fruit and vegetable pack houses, meat and
cheese processing plants and bakeries. It is the only UK supermarket to:
– Slaughter its own meat (own abattoirs)
– Run its own bakeries – bread and sandwiches (own bakers)
– Produce its own cheese, bacon, sausages (own pie and sausage factory)
Food is fresher because it comes in faster with no middlemen and no warehouses. All of this helps the business to
achieve its number one vision - to be the food specialist for everyone.
2. Value – keeping costs low and offering great value across the product range. It delivers this by:
– Strong promotional offers
– Offering a range of products from ‘Value’ to ‘Premium’
3. Service – having the right product availability (because they own the distribution network) and excellent customer
service. It aims to:
– Move from ‘national’ to ‘nationwide’ by opening more stores across the UK
– Add 60 stores over the next three years (1.5M sq feet of space).
• The strategy could be summarised as “fresh food at low prices”, with the Morrisons mantra being “fresh
and value”
Morrisons could be described as having a food offering with broad
appeal from Aldi to Waitrose
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23. Morrisons Business Model:
A vertically integrated approach which is different from
other supermarkets
Sourcing & Market
Production Distribution
Selection Street
100% British beef,
pork, lamb, poultry
12 distribution
12 distribution
100% sustainable centres
centres
fresh fish Ownership of 425 Stores
3 bakeries across the UK
100% own brand 6 food & veg packhouses Including in
Own fleet of store Customers
Bristish free 1 food prep factory
range eggs 3 abattoirs 700 tractor units bakeries,
& 1,800 trailers fishmongers,
Regional milk
butchers etc
from farms close
to stores
Brands sourced
From other
manufacturers
(e.g. Heinz)
Morrisons is different from other supermarkets because it owns and control its supply chain. This means that
Morrisons are closer to source by ‘cutting out the middleman’. The advantages of this business model are:
• customers get great value for money and fresh food at great prices
• Morrisons can react earlier to consumer trends and bring seasonal food in-store quicker than other supermarkets.
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24. Rationale Behind Morrison’s Business Model
Sourcing & Market
Production Distribution
Selection Street
Being closer to Owning the Ownership and Preparing food in-
source and working manufacturing operation of a very store means:
closely with facilities and modern transport fleet
farmers/producers producing in-house means:
means: means that:
• better control of the • supply chain lead • ensures speed and • faster reaction to
provenance and times are reduced freshness and cost customer trends
quality of food which maximises the control. throughout the day,
freshness in-store producing only what
and reduces waste the customer wants
• development of a • Morrisons claims to
cost relationship that and costs.
have the quickest
is reasonable and fair turnaround time • reducing waste from
to all parties • security of supply is between order and over production,
achieved delivery compared achieving cost
with any other efficiency and
• sustainable and
supermarket keeping prices low.
responsible sourcing • food miles close tare
to help the reduced because
environment many facilities are • products are freshly
situated o distribution made.
centres
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25. Morrisons ownership of its supply chain includes
some newly acquired firms
Wholly-owned subsidiaries of Wm Morrison Supermarkets PLC
• Bos Brothers Fruit and Vegetables BV - produce wholesaler
• Wm Morrison Produce Limited - produce packer
• Farmers Boy Limited, - manufacturer and distributor
• Neerock Limited - fresh meat processor
• Rathbone Kear Limited - baker (acquired in 2005)
• Farock Insurance Company Limited - captive insurer
• Safeway Overseas Limited - holding company
• Safeway Overseas Limited - grocery retailer
• Safeway Stores Limited -grocery retailer
In addition, Morrisons has just opened its own 700 acre farm in Scotland
• The supermarket has teamed up with the Scottish Agricultural College to open the farm at Dumfries
House in East Ayrshire
• Both Morrisons and the agricultural college hope that the farm will become a "centre of excellence",
carrying out research and developing best practice for the industry and making a contribution to helping
the long-term sustainability of British farming.
• The farm rears traditional cattle and sheep breeds. The first livestock are Shorthorn and Angus cattle.
Morrisons hopes to open a second research farm in south-east England later this year.
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26. Morrisons’ ability to compete successfully with other
supermarkets will be affected by the company’s strengths
and weaknesses
Marketing Operations
Key Strategy Question:
What are Morrisons’
Strengths, Weaknesses
and Issues in its four main
business activities?
Human
Resources Finance
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27. MARKETING:
Morrisons has a very clear Unique Selling Point
Morrisons does not just compete on price. Morrisons is different from other supermarkets
because it:
• Owns its supply chain, its own manufacturing sites and ‘Market Street’.
• Makes and packs its own fresh produce which is washed, graded and packed in its own
packing facilities
– three bakeries produce six million loaves, rolls and muffins each week
– fresh meat products like pies, burgers and sausage rolls are made in its meat processing plant.
• Supplies direct to its stores through 12 distribution centres and using its own fleet which
works around the clock to deliver the freshest food to stores
– three abattoirs supply meat to the stores, where it is cut in store by trained butchers
• Produces 1,700 fresh lines of food in stores everyday
“ We emphasise our deep understanding of food: through being closer to source than other retailers,
through our unique manufacturing and packing facilities, through the amount of food preparation
undertaken in our stores and through the employment of more specialist butchers, fishmongers and
bakers than our competitors. We stress that our offer is for everyone, because our great food is also
always great value” (Morrisons Website)
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28. MARKETING:
There is a range of Products and Prices, but is it broad
enough to be the food specialist for everyone?
• About 80% of Morrisons revenue comes from the sale of food and groceries, with 20% coming from the sale of
fuel/petrol
• A range products is available including green grocery, fish and meat, bakery items, alcoholic and non-alcoholic
beverages, pharmaceuticals, dairy based products, garden furniture, tools and recipes.
• Products are sold under both Morrisons own brand label as well as renowned, household brands from around
the world.
• Food ranges include the basic Morrisons Value, Morrisons Organic, Kids Smart, Food Fusions, Eat Smart,
Free From (foods for wheat, gluten or dairy-free diets), and its Premium food range branded “The Best”.
• In 2008, following market research indicating that 74% of customers wanted opportunities to buy more regional
produce in store, Morrisons introduced the new ‘From My Farm’ range.
• There has been a recent focus on improving the quality of ready meals as well as the fresh fruit and
vegetables products
• Non-food products consist of some essential clothing (underwear, socks, etc) and a wide range of DVDS, CDs
and console games. It is currently launching a further 500 non-food, home-ware product lines to complement
its food range
• Sales growth of the Value range have been up 50% in the last year, while sales of the Premium range “The
Best” are up by 5%. This may reflect the trend for consumers to switch to lower priced products during the
current tough economic times
But
• Supermarket retailing is all about reacting to markets and understanding what consumers want. Unlike its
main rivals, Morrisons has:
– No online food and grocery business
– A very limited non food offer
– No loyalty card scheme to track customer trends and offer lapsed customer discounts tutor2u
29. MARKETING:
Place – “Market Street” is a successful store format, but
are there enough of them?
• Morrisons has built its reputation around a no-frills store format called Market
Street . The overall theme of its supermarkets is based on an early 20th century
street setting in the north of England positioned around the edge of a store, with
more conventional aisles in the centre.
• All stores feature a butcher's counter, bakery, a pie shop, deli and fish counters,
a Fresh to Go counter (for salads, sandwiches, pizzas and pasta), a cake shop
and a cafeteria.
• Petrol stations are also a common feature of most stores.
• HSBC Bank outlets can also be found in a number of stores, which offer a range
of financial services, including an exclusive credit card and savings account.
But
• Morrisons’ market is limited because:
– 35% of Britons (7 million households) live more than 15 minutes away from a
Morrisons store (i.e. there are not enough of them)
– Morrisons has no convenience stores
• Some customers dislike having to find a £1 coin (returnable) for using the
supermarket trolleys
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30. MARKETING:
Morrisons has recently changed its Promotional and TV advertising
campaign to emphasise its usp and the business model
• In 2007 Morrisons adopted a celebrity-led advertising campaign which became well known
for featuring a host of famous faces including Denise van Outen, Richard Hammond, Alan
Hansen and Nick Hancock.
• The new campaign, created by DLKW and launched this year, swaps famous faces for
inquisitive children visiting farms and butchers and asking questions about the origins of
Morrisons’ fresh food.
• The ad shows school children on a trip to a farm, asking farmers and buyers questions
about meat. The children are then seen in-store with a butcher, who explains how
Morrisons is different to its main rivals, Tesco, Asda and Sainsbury’s. The advertisements
are designed to show where fresh food comes from
• This first execution of the campaign aims to communicate the fact that Morrisons is the
only supermarket to sell 100% British fresh meat and poultry.
• The strategy also marks a change to the brand’s strapline, "Fresh choice for you". It will
now use "Eat fresh. Pay less" to promote its freshness message, while appealing to
consumers' wallets.
Why the change?
• It is partly a reaction to rival brands moving into its fresh food territory
• Morrisons feels that children are “more believable” than highly paid celebrities
• All advertising campaigns have a life cycle and require renewal
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31. MARKETING:
The ‘Let’s Grow’ voucher scheme is targeted at freshness,
food production and schools
• Morrisons' promotional strategy also includes its Let's Grow voucher scheme.
The initiative, which was launched in 2008, encourages customers to collect
vouchers in-store for every £10 they spend. Vouchers can then be redeemed
for free gardening equipment for schools including seeds, spades, hoes,
hosepipes, biodegradable pots, soil testing kits, smocks, sun hats and even a
state of the art wormery (which enables Tiger worms to munch their way
through garden and kitchen waste, producing a nutrient-rich compost for the
garden
• The aim is to encourage children to grow their own fruit and vegetables and to
link Morrisons with schools and freshness
• Over 20,000 schools have registered for the programme and Morrisons has
given away over £3.2m of gardening equipment
• The scheme competes with Tesco’s Schools and Clubs scheme ,and
Sainsbury’s Active Kids initiative
• In 2009 it won the IPA Effectiveness Grand Prix, having generated a claimed
ROI of £21.57 per £1 spent.
• Let’s Grow ties into the National Curriculum and also supports the
Government’s ‘Growing Schools’ initiative.
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32. OPERATIONS:
Morrison is a producer as well as a retailer, but how much
of an advantage is it to own their means of production?
Production
Morrisons engages in at least two types of production:
• Just in time production – e.g. making sandwiches in-store, preparing packaged salads in-store
• Batch production – e.g. bread rolls, tuna steaks
• In 2009 Morrisons reduced the volume of waste sent to landfill by 2,886 tonnes, achieving a cumulative
reduction of 17% since 2006.
Morrisons owns a farm in Scotland, with plans for a second farm in the East of England
• Morrisons Farm at Dumfries House is a research farm on a 700-acre site on the Dumfries House Estate
in East Ayrshire.
• It is a ground-breaking joint venture to help improve the efficiency and sustainability of British farming.
• Morrisons work in a joint venture partnership with the Scottish Agricultural College, with support of the
National Farmers Union of Scotland. It is intended that the farm will become become one of the
leading centres of excellence for applied farming research.
• Owning the means of production (and distribution – see next slide) helps to secure continuity in the
supply chain
But
• Will a strategy of farm ownership give Morrisons a competitive advantage?
– Tied monopolies lose the imperative to be efficient if they have a ‘guaranteed’ customer
– Would it be better to play the (spot) markets for produce? tutor2u
33. OPERATIONS:
Morrisons distributes on a national scale, but needs to become a
nationwide operator to achieve further cost reductions and
economies of scale
Distribution and Packing
• In order to distribute products, Morrisons owns and maintains
– 12 distribution centres
– 700 tractor units
– 1,800 trailers
• 1.9 Million trays of loose fruit are packed and 18 Million cases are delivered to stores each
week
• Morrisons has invested heavily in its distribution infrastructure, IT and logistics. For
example:
– The packing house at Flaxby, North Yorkshire, has been extended and refurbished in the last
year, bringing efficiency improvements
– A new purpose-built distribution centre was opened at Sittingbourne last year supplying stores in
London and the South East. It reduces the distance that the fleet travels by around 20m km every
year and has created around 1,000 new jobs.
But
• In order to be competitive with Tesco, Morrisons needs to become a nationwide operator
(with a greater presence in the South of England), not just a national operator so that it
can generate bigger economies of scale, thereby reducing its average unit costs
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34. OPERATIONS:
Product Quality, Education and Training
Quality
• In order to provide the very best fresh produce at great value Morrisons has a regional sourcing policy.
• Morrisons is committed to an approach of 100% British quality.
– In 2007 it was the first of the top four supermarket chains to commit to selling 100% British fresh meat throughout
the year
– In 2008 it extended its commitment to and support for British farmers by ensuring all own-brand fresh milk was
sourced regionally from farms that are in the same area as the Morrisons store that sells the milk. This means that
the milk has not travelled far and it stays fresh. For example it sells Scottish and Welsh own-label fresh milk.
• Morrisons also has a seasonal sourcing policy whereby products available in-store change with the
seasons.
Education
• Morrisons has established producer groups for dairy, beef and poultry farmers, to develop closer links
with those farmers. Through the producer groups, it shares and increases knowledge and
understanding across the supply chain, driving up quality and efficiency, and helping to secure the long
term viability of British farming.
Training
• The Morrisons Fresh Food Training Academy gives all Market Street colleagues a nationally
recognised qualification in Retail Skills. (see HR section)
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35. HUMAN RESOURCES:
Morrisons integrates its core values
within its HR strategy and culture
Strategy
• 131,000 people are employed in the UK which makes it a significant employer. The HR
strategy is:
– People are our most valuable asset and our success relies on our people delivering great service
to our customers each and every day.
– To attract, motivate and develop skilled people to ensure that Morrisons becomes the food
specialist for everyone.
Values
• Values define what Morrisons expects from employees and what customers can expect as
well. These include a can do approach, great shopkeeping, one team, bringing the best
out of people, great selling and service and fresh thinking.
• There is a company wide education programme for all employees in the form of interactive
Vision and Values workshops to integrate core values into every day behaviours at
Morrisons.
Leadership
• Leadership development initiatives, such as the ‘Leading the Morrisons Way’ programme
are in place to ensure that leaders of the future have a good chance to succeed within the
unique culture of Morrisons
• Wherever possible Morrisons looks to develop people from within the business to meet
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36. HUMAN RESOURCES:
Morrisons offers a variety of jobs for a range of talents
from school leavers to graduates to experienced people
Head Office Regional Stores
• Finance • Logistics • Store Manager
• IT • Manufacturing • Deputy Store manager
• Marketing • Engineering • Duty Night Manager
• Merchandising • Regional / General • Baker
• Human Resources Management • Butcher
• Property and • Pharmacist
Development • Greengrocer
• Retail Operations • Fishmonger
• Security • Check out / cashier
• Supply Chain • Shelf stacker
Management • Customer services
• Trading / Buying • Cleaners
When answering questions in the A2 examination, make sure that you distinguish
between different types of job/employees because not all workers will be affected
in the same way by Morrisons’ various HR strategies
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37. HUMAN RESOURCES:
Morrisons’s growth has meant they have been able to create and
recruit new jobs despite the recent, tough economic times in the UK
• Workforce numbers have risen from 124,000 to 131,000 in the last year or so
• 4,700 new jobs were created through organic growth, many in butchery, fishmongery
and bakery
• The ‘I Want a Fresh Start’ campaign, launched in 2008, redefined Morrisons’ approach to
attracting and recruiting fresh talent into the business.
– A new dedicated recruitment website, www.iwantafreshstart.com, allows candidates to apply
online for careers at Morrisons.
– National advertising has raised the profile of Morrisons as an employer, evidenced by the high
interest and number of applications for management positions in particular and the appointment of
50 key retail managers.
• 2,300 colleagues formerly employed by the Co-operative Group or Somerfield have joined
through acquisition growth.
– As part of the conversion of these stores to the Morrisons format, all of these colleagues have
undergone training in core values of customer service and the fresh food offer.
• Every new employee experiences the Vision and Values programme as part of their
induction.
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38. HUMAN RESOURCES:
Morrisons spends significant time and money on its
quality training and development programme
• In 2009, Morrisons launched The Fresh Food Training Academy to strengthen its
position as the UK’s leading proponent of retail craft food skills. These skills help
– people build a career and
– Morrisons further increase the quality, value and service provided to customers.
• The Fresh is Best programme focuses on engaging and training managers to deliver
readily available, well presented, freshly prepared, quality products, whilst maintaining
standards, reducing wastage and giving great selling and service.
• In July 2010 more than 24,000 Morrisons’ staff graduated with Edexcel’s Level 2 (formerly
NVQ) Diplomas in Retail Skills from the supermarket’s Training Academy, thereby
becoming officially qualified as bakers, butchers, greengrocers and fishmongers.
• This initiative reflects current trends in retail training. The number of retail workers across
the sector with no recognised qualification has dropped from 17% in 2002 to 11% in 2010.
Managers are increasing their skills too, with 31% having level 4 or higher standard
qualifications in 2010, compared with only 20% in 2002.
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39. HUMAN RESOURCES:
Morrisons offers a range of extrinsic and intrinsic rewards
to support the motivation of their workforce
Extrinsic Intrinsic
• Competitive rates of pay • Social Committees (e.g. Theatre
• 10% staff discount trips, Christmas parties, nights out)
• Free Life Assurance • Fundraising events for the Charity of
• Staff Profit share and Management Bonus Plan* the Year
• 29 days paid holiday • Excellent training
• Service award* • Career development
– 5 years = £125
– 10 years = £250
– 15 years = £375
– 20 years = £500
• Subsidised staff canteen
• Opportunity to join stakeholder pension scheme
• Opportunity to join the Share Save scheme
• Health car cash plans
• Premium payments for working on Sundays
• Discounts with APH, Thomas Cook, RAC, Kwik Fit etc
* after qualifying period (in order to generate employee loyalty)
Morrisons’ staff have been recognised for their achievements with prestigious
industry awards including Retail Week’s ‘Retailer of the Year’ for the last two
years and The Grocer’s Service and Availability awards.
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40. HUMAN RESOURCES:
Continuous communication and employee engagement is
an important component of the HR strategy
• In November 2008, Morrisons launched “Gimme 5” briefings to strengthen its
communication lines and to create a more committed and productive workplace.
These are five minute, face-to-face monthly departmental briefings based on
messages cascaded down through the business, starting with the Chief
Executive. Workers are encouraged to ask questions and provide feedback on
the topics covered.
• Employees are encouraged to give their opinions through the Climate Surveys.
The Climate Survey conducted at the end of 2008 covered workers across all
areas of the business, seeking opinion on a range of areas such as job
satisfaction, team environment and management.
• All employees participate in either the Profit Share Scheme or Management
Bonus Plan, ensuring that everyone feels a part of the challenges and
successes of the organisation.
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41. HUMAN RESOURCES:
...but is it all good news within HR?
You need to treat the evidence critically...
• The employee turnover rate is 22% p.a. Only 33% of employees remain
with the company for at least five years. This means that
– Return on costs of training and development are ‘lost’
– Costs of recruitment and replacement are incurred
– Not everyone is proud to work for Morrisons
• Several jobs at Morrisons are not great jobs and they do not attract
great pay (e.g. shelf stacker, cashier, cleaner, warehouse worker)
– There is a transient workforce for these jobs where people are not in the
business for the medium to long term (e.g. university students, those who
would rather be working somewhere else)
• Although Morrisons trains and develops leaders from ‘within’, the last
two Chief Executives (Bolland and Philips) have both been recruited
from outside the business
– Is this a vindication of the leadership, training and development
programme?
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42. FINANCE:
An analysis of the Profit & Loss Account shows a healthy
level of profitability and good cost control
Profit and Loss Account % Change Profitability Ratios
£M's 2010 2009 2008 2009-10 2008-9 2010 2009 2008
Turnover 15,410 14,528 12,969 6% 12%
Cost of Sales 14,348 13,615 12,151 5% 12%
Gross Profit 1,062 913 818 16% 12% 6.9% 6.3% 6.3%Gross Profit Margin
Other operating income 65 37 30
Admin expenses / overheads -224 -281 -268 -20% 5%
Property transactions 4 2 32
Operating Profit (Net Profit) 907 671 612 35% 10% 5.9% 4.6% 4.7%Net Profit Margin
Finance Income/Interest -49 -16
Profit before Tax 858 655 612 31% 7%
Taxation -260 -195 -58 33% 236%
Profit after Tax 598 460 554 30% -17%
• Sales revenues are up year on year reflecting strong top line sales growth
• Gross Profit margins are up 10% in 2010 showing tight control of Cost of Sales
• Net Profit margins are up 27% in 2010 showing very tight control of overheads and expenses
• Profit After Tax is up 30% in 2010 which is an excellent year on year improvement
But
• Although Net Profit margins are higher than Sainsbury (3.6%), they are slightly lower than Tesco
(6.0%)
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43. FINANCE:
Morrisons has not been shy to invest money in
acquisitions and store expansions
• Morrisons is a top 50 UK company by market capitalisation
• Analysts value the property, plant and equipment portfolio
at about £7.5 Billion
• The share price has fluctuated between £2.60 and £3.00 in
last 12 months
• As a public limited company, it can raise significant sums of
money through the sale of shares and/or through borrowing
in order to expand
– e.g. Acquisition of Safeway in 2004
– e.g. Acquisition of Somerfield stores from Co-op in 2009
• Profits in 2009 were impacted by Summerfield/Co-op store
integration
• Morrisons made charitable donations of £1.18M last year
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44. FINANCE:
Morrisons key ratios show real financial strength,
although it must be careful about short term liquidity
2010 2009 2008
Current ratio 0.51 0.53 0.49
Quick ratio 0.24 0.28 0.25
Gearing ratio (%) 20.0 27.1 24.3
Earnings per Share (p) 22.8 17.4 20.8
Dividend per share (p) 8.2 5.8 4.8
ROCE (%) 13 12 12
P/E ratio (times) 14.3 15.6 15.2
• The low gearing ratio (Debt to Equity) is the strongest in the supermarket sector and means that
Morrisons could borrow money in order to expand, especially given that interest rates are currently
quite low and look set to stay low for some time
- Morrisons owns about 90% of its store portfoilio
• ROCE is healthy, given that the opportunity cost of investing the same money in the bank is about 4%
• A strong dividend has been paid to shareholders in the last three years, especially in 2010
But
• Although the PE ratio (an indication of future growth) is higher than J Sainsbury, it is lower than Tesco
• Although EPS is higher than Sainsbury (16.4p), it is lower than Tesco (27.3p)
• Morrisons current and quick ratios are low and may reflect short term liquidity issues
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45. Summary of Morrisons’ Strengths and Weaknesses
Strengths Weaknesses
Marketing Strong USP: Fresh, Value and Service No convenience stores
New promotional message No online product range
Limited non food offering
Operations Local sourcing through British farmers and National rather than
producers nationwide coverage limits
Produce, pack and supply direct to stores economies of scale
Own supply chain, own manufacturing sites
and Market Street
Human Own training academy Staff turnover
Resources
Finance Low gearing Current ratio and Quick ratio
Good sales turnover growth are both quite low
Rising net profit margin EPS and Net Profit Margins
are lower than Tesco
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46. There are several external
influences outside Morrison’s
control which create
opportunities and threats
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47. Political (and Legal)
• UK and EU legislation is applied to UK food retailers covering issues such as planning, licensing,
pricing, competition and customer protection (e.g. Planning Policy Guidance, Competition Commission
and Food Standards Act 1999)
• The British Retail Consortium (BRC) is the main trade body for the food retail industry in the UK
representing more than 90% of companies involved in this industry
• The Food Standards Agency is an independent watchdog established to protect the public's health and
consumer interests in relation to food safety. Food hygiene is monitored by the Environmental Health
Department
Opportunities
• Reduced fat in foods
• Food miles labelling and carbon footprint
• Better relationships with National Farmers Union
Threats
• A significant number of people, such as farmers and countryside groups, oppose the dominance of the
supermarket multiples
• Government legislation aimed at limiting out-of-town developments can make it difficult for
supermarkets to obtain planning permission for new out-of-town stores
• Competition Commission rules make it hard for supermarkets to acquire their competitors due to the
possibility that local monopolies will be created
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48. Economic
Opportunities
• Grocery sector is less prone to fluctuations in the economy because
people need to eat
– During recession people might eat out less and eat in more which has
allowed retailers like M&S to target promotions such as “eat in for two for
£10”
• During recession, customers tend to switch to ‘Value’ brands rather than
‘Premium’ brands
.
Threats
• Banks are reluctant to lend in the current economic climate which could
make it hard to raise money for the store expansion programme
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49. Social (and Environmantal)
Opportunities
• Consumers have increasingly exotic tastes and desire variety, choice and value
• UK consumers spend around 3% of their waking lives in supermarkets and are
increasingly willing to make purchases of non-food items such as clothes, and
electricals through one stop shopping at supermarkets
• ¾ of people travel by car when they go shopping
• People are becoming more concerned about healthy eating, especially organic
foods, although there remains a strong “junk food” market
• Sales from convenience stores are increasing rapidly because they are easy to
access. People tend to buy luxury food or ‘top ups’ from them
• Shoppers like to buy “Green” food and are becoming more aware of packaging
waste and its disposal
• The environment and ethically friendly image of companies is welcomed by
consumers.
Threats
• There are strong doubts about the safety and ethics of genetically modified
(GM) food
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50. Technological
Opportunities
• The application of increasingly sophisticated IT systems for logistics
management can help supermarkets to optimize their supply chains,
speed up delivery and facilitate storage management
Threats
• The popularity of mobile/laptop computing and wifi has encouraged a
trend in virtual shopping and online retailing and has become a new
method for communicating with and targeting consumers. This could
substantially change the ‘physical’ shopping model of the future.
• Amazon has just launched a new grocery section so customers can put
paperbacks together with pasta and pork chops in the same virtual
shopping basket
– Specialising in gluten-free cereals, organic jam, imported delicacies like stuffed vine leaves and
Italian biscuits
– Targeting bulk buyers – ‘steak lover pack’ £57.15 for 16 steaks
– 22,000 grocery items including branded products from Pampers, Uncle Ben’s Ariel, Dolmio, Kraft
and Walkers
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51. SWOT Analysis – A Summary
Strengths Weaknesses
• Strong USP • Need for nationwide coverage
• Ownership of supply chain • No convenience stores
• Healthy financial position • No online business
Opportunities Threats
• Green, organic, ethical products • Competition Commission
• Food miles and carbon offset • Online retailing
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52. Strategic Analysis:
Michael Porter’s Five Forces Model
Threats of Substitution (Low)
• As more supermarkets move to the
convenience sector, this threat
diminishes
• Grow your own fruit and veg?
• Development of drink/tablet
replacements for food?
Supplier Power (Low) Rivalry of Industry Competitors • Customer Power (High)
• Numerous, diluted suppliers (Medium/High) • Easy to switch, especially
• High threat of vertical integration • Some characteristics of an oligopoly without a loyalty card
• Limited volume, purchasing power • Some product and branding • Many products are very similar
• Reasonably easy for differences, but many products are in different supermarkets
supermarkets to switch suppliers the same • Sensitive to price changes at
• Some protection from authorities • Steady industry growth the volume end, always looking
and pressure groups • Medium/High exit barriers for value
Threat of New Entrants (Medium/Low)
• Due to the high economies of scale, strong learning
curve effect and large capital requirements, it is hard to
enter. Carrefour (world’s second largest retailer) could
enter. Primark could move from clothes to food
(discounter)
• Organisations such as the Post Office or milk
companies could offer a grocery home delivery service
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54. Is Morrisons a fresh and value
food specialist for everyone?
• In many ways, Morrisons does achieve its vision, especially given that
customers have an increasing focus on the provenance, quality and
freshness of the food they buy. Morrisons is also perceived to be good
value by its customers.
However, the following strategic questions can be discussed.
• Fresh food - petrol/fuel, which accounts for 20% of Morrisons’ total
turnover, is not a fresh product and it is not a food product.
• Specialist - there are other niche food organisations who could claim to
be more ‘specialist’ than Morrisons in certain segments (e.g. vegan,
health foods, kosher, indian/thai/polish, wheat/gluten free)
• Everyone - lots of people can’t easily access a Morrisons supermarket
because they have no convenience stores, no presence at motorway
service areas, no online shopping, no overseas stores
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56. Morrisons needs to consider its
current market penetration strategy and
whether it should expand in other ways
• Morrisons has expanded by acquisition and through organic growth in
the food and grocery sector
• In contrast to the other major UK supermarket groups, its strategy has
been predominately based on selling groceries at low prices and doing
so from large stores only
• It has not expanded into the convenience store market
• Morrisons is the only one of the big four supermarket groups which does
not offer its customers an online shopping service
• Morrisons has not developed the ‘one stop’ model and has only a very
limited range of non food items by comparison with shops?
• Morrisons has not expanded into overseas markets
• Morrisons needs to consider whether its current strategy is right or
whether it needs to change and copy its main rivals in one or more of
the strategies outlined above
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57. Key Strategy Issue:
Should Morrisons construct a
new store on the basis of the
information in Evidence D?
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58. The proposed store construction can be evaluated by
drawing a network diagram and assessing the critical path
• Evidence D gives some information about a potential store construction
in the Southern Counties including:
– Activity
– Duration
– Dependencies
• This is sufficient information to enable the development of a network
diagram
• Network diagrams and critical path analysis are used by businesses to
plan and deliver potentially complex operations and projects. They are
an essential managerial planning tool, enabling managers to allocate
resources in the most appropriate manner and to manage the most
critical activities that are likely to cause delay to the operation or project.
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59. The network diagram shows that the proposed
store construction will take 51 weeks
H 44 J
6
44
8 7
A C F 36 I 38 K
5 7
6 2 4 36 2 47 4
4 13 9 9
0 8 23 E 32 G 51
1 2 3 4 8
0 8 23 9 32 5 51
B D 14
8 15
Key
A Foundations F External window and doors
B Drainage G Internal floor tiling
C Erect steel frame H Ceilings
D Brickwork and blockwork I Joinery and internal doors
E Roof structure J Decoration
K Fixtures and fittings
Critical path 6 Duration 4 Float
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60. Some conclusions and questions arise from the network
diagram. And remember it is only a proposal at this stage
Business Planning Considerations
• The project is for a store in the Southern Counties which is an areas where Morrisons needs to increase its presence, so
it may be a well chosen location
• We would need to assume that Morrisons has done appropriate market research into the site and the target market,
including analysis of competitor stores in the locality
• How confident are the Morrison directors about the growth of their market in the medium term?
• Do the Morrison directors regard this project as a high, medium or low risk investment?
Project Planning Considerations
• By no means all of the activities required to open the store are listed. For example, the construction schedule has no
activity for snagging faults and Morrisons would need to add time for staff training, the marketing launch etc.
• Morrisons could incentivise the building contractors to complete the project in less than 51 weeks so that they could
begin trading earlier and they may want to impose financial penalties for late completion against the agreed plan
• Activities on the critical path, such as drainage, would need to be carefully managed since any slippage will result in a
delay to the project.
• Activities where there is ‘float’ (e.g. erection of steel frame) give the project managers the opportunity to negotiate with
suppliers over timescales – it might be cheaper to wait a couple of weeks for the frame if the supplier can do it more
cheaply at that time
• Questions need to be posed about the reliability of the assumptions for activity duration and dependencies, who
produced them and how good is their track record of project planning for new store builds?
Financial Planning Considerations
• No costs or revenues have been estimated for this construction project. These would need to be understood before
undertaking the project and the targeted Return on Investment would need to be agreed
• Does Morrisons have a criterion level (desired return / hurdle rate) for its investment projects and how would this project
stack up against that level?
• What other investment projects is this one up against and how high does it rank against these projects?
• Does Morrisons have the necessary financial capital to invest in the project (it probably does!) tutor2u
61. Network Diagrams:
They are useful to some extent, but beware...
The advantages of Network Diagrams and CPA are that they:
• Provide decision makers with a picture of a problem, so it easier to interpret
• Encourage forward planning of all activities, rather than planning ‘on the fly’
• Help to reduce the time lost between activities so projects can be run efficiently and lead times reduced
• Assist in the management and allocation of resources
• Improve production efficiency because materials, labour and capital equipment can be
ordered/delivered ‘just in time’ rather than tying up working capital
• Enable managers to focus on the critical path to ensure that the Project/Programme is successfully
delivered
But
The concerns with using Network Diagrams are that they:
• Depend upon the accuracy of the planning assumptions (e.g. durations of activities, dependencies)
• Can become unwieldy or over complicated for extremely large projects
• Do not guarantee the success of a project or activity – management still need to manage and
implement the plan, deal with delays and cope with the unexpected
Remember - when using a Network Diagram it is important:
• To adopt a realistic view of timescales and effort required
• Not to delete agreed activities in order to ‘speed up’ the process
• Not to accept that an activity is complete if it is only 90% done
• Not to change the target dates without a very good reason
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62. Key Strategy Issue:
To what extent does Morrisons
achieve Corporate Social
Responsibility?
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63. Morrisons is firmly committed to achieving CSR, but there
are some difficulties with their approach?
• Morrisons has a stated commitment to act sustainably and to protect and nurture the valuable resources on which we all
depend. It’s philosophy is that by taking good care of what we do today, we can make a real difference for tomorrow.
• The CSR programme is structured around three principal areas:
Environment - taking good care of the planet, carbon, waste and sustainability
• In May and December 2008 Morrisons gave away 10 million reusable bags (one for each customer) made from 100%
recycled material and larger than standard bags. Customers were encouraged to use the bags on every shop. Carrier
bag consumption has been reduced by 71 million bags.
• Filling station pumps have been converted to highly efficient ‘vapour recovery’ pumps which emit much reduced levels of
fuel vapour into the atmosphere. This was a £16m investment in improved environmental performance
• In June 2008, it was among the first of only 12 companies to receive the prestigious new Carbon Trust Standard for
reducing carbon emissions. The accreditation scheme is the world’s first carbon award requiring an organisation to
measure, manage and reduce its Carbon Footprint and make real reductions year-on-year. Morrisons’ Carbon Footprint
has been cut by 36% since 2005
But
• Morrisons still use plastic bags which take hundreds of years to biodegrade
• Morrisons sells fossil fuels which are bad for the environment
Society - taking good care of our shoppers, our colleagues and their communities to give healthy, balanced lifestyles
• The ‘Let’s Grow’ programme supports education, schools and growing fresh food
• The ‘Great Taste, Less Waste’ programme helps educate customers and the general public in better food management
It provides easy, practical tips to improve the storage of food and dispels some myths. For example, it highlights that
tomatoes are best kept at room temperature and apples in the fridge – the reverse of how most consumers store them
But
• People have to drive to Morrisons stores. This is at odds with a healthy lifestyle and reduced Carbon Footprint
Business - taking good care as we go about our business from sourcing to supply to engagement with stakeholders
• Local sourcing policy helps them achieve this tutor2u
64. Key Strategy Issue:
Morrisons’ success will be
affected by its corporate culture
and the ambitions of Dalton
Philips, the new Chief Executive
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65. Morrisons culture is changing
• Morrisons has its origins as a budget, pie selling traditional Northern retailer
– 10 years ago, TV advertisements sold pies, cut price packets of crisps and showed smiling
butchers
• Having acquired Safeway, it has been through a cultural integration programme and
opened up access to the market in the South of England
• For over 100 years, Morrisons has operated under the characteristics of a Power culture
(as defined by Charles Handy) under the leadership of the Morrison family
• Sir Ken Morrison has stepped down after 50 years and for the first time ever there is no
member of the Morrison family in an executive or board role
• As it moves from a national to a nationwide organisation, Morrisons is adopting an
increasingly professional, process driven, businesslike approach
• This approach was needed because of the difficulties experienced during the Safeway
integration and the need to be responsive to customer trends in a competitive
environment
• The new approach was started by Marc Bolland (who has moved on to become Chief
Executive at M&S) and is being continued by Dalton Philips, a former Walmart executive
who was recruited from the Canadian food distributor Loblaw
• Morrisons culture is therefore becoming more of a Role/Task culture, replacing the Power
culture of the past
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66. Health warning for Morrisons
There is a limited amount
of evidence in the case
study so it is difficult to
develop a water-tight
corporate strategy. But is
it possible to evaluate
some of the options
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68. The work of Michael Porter: Morrisons’ strategy needs to
reflect its competitive advantage
• Resource advantage – firm specific
assets that the competition cannot Morrisons has some
easily acquire such as patents, trade competitive advantage from
marks, proprietary knowledge, installed owning elements of its supply
customer base, reputation, brand chain
identity
Morrisons has a competitive
• Capability advantage – skills and
advantage from its Training
competencies, innovation, creativity and
quality of processes Academy – Retail Skills
Morrisons has no discernible
• Cost advantage – productivity of competitive advantage on cost
labour/assets and buying power for raw
and may have a disadvantage
materials
on economies of scale
• Differentiation advantage – ability to add Morrisons has competitive
value by offering (unique) product advantage through its ability to
benefits
produce fresh products in-store
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69. Porter identified three generic strategies against which
Morrisons can be evaluated
Generic What does it mean? What is required?
Strategy
Cost Unit costs are lower than competitors Up front investment in
Leadership because of economies of scale, good gaining market share Yes
production processes and efficient followed by running a very
resource allocation tight ship
Differentiation Winning profitable segments of the Finding perceived product
market. Unit costs may be higher, market characteristics and
share is less important, but customers are uniqueness that add value Maybe
prepared to pay a premium for quality
and individualised products
Focus Avoidance of confrontation with Finding markets that large
competitors (cost leaders and companies cannot easily
differentiators) by developing niche replicate (e.g. super fast
positions with products for otherwise delivery, personal service,
No
unsatisfied customers hard-to-imitate products)
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71. Assessing the Strategic Options available to Morrisons
Generic strategies: businesses have three strategic options:
1. Retrenchment: this is not applicable to Morrisons
2. Stability: this could apply to Morrisons, but they have decided that it is a
strategic imperative to continue to grow through increasing shop floor space in
the UK
3. Expansion: there are a variety of ways in which Morrisons can deliver this
strategy…
Strategic tools
• There are several tools available to identify strategic options for growth
• These centre on the approach the business might take to its products and
markets and whether growth should be “organic” or by “acquisition”
Evaluation
• The evaluation of strategic options should take into account Morrisons’:
– Aims and objectives
– Physical, human and financial resources
– Management structure and skills
– Culture
– Key stakeholders and shareholders, their views and interests
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72. The Ansoff Matrix can be used to help make
decisions about products and markets
• Decisions about what products to sell, and in which markets, provide an
important guide to the direction of growth
• Ansoff drew up a growth vector matrix that described how a combination
of business activities in existing and new markets, together with existing
and new products, can lead to growth
• The four strategies arising from the matrix are:
– Market penetration – increasing market share
– Market development – where a business seeks new markets (either new
geographies or new customer segments) for its products and abilities
– Product development – the launch of new products to existing markets
– Diversification – when a business decides to offer new products in new
markets
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73. Ansoff Matrix:
Products and Markets
Existing Products New Products
Existing Markets
Market Product
Penetration Development
New Markets
Market
Diversification
Development
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74. There are two choices to be made about how a
business should invest in a growth strategy
Organic Growth Acquisitions
Growth by using the existing, internal Growth by buying other businesses or
resources of the business assets
Advantages Advantages
Makes best use of existing resources Can overcome barriers to entry
Consistent with the culture and Helps spread the risk (not all eggs
management style of the business in the same basket)
May lead to economies of scale Provides quick access to key
business resources (e.g. brands)
Easier to control = less risk
Easier to control = less risk
Disadvantages Disadvantages
Often slow particularly if existing Cost – price usually too high
markets are low growth
Different cultures – may clash
Doesn’t create barriers to entry
Customers may be upset
Spare resources (e.g. cash) may be
High failure rate (70% of
wasted
acquisitions fail to achieve their
Can create a cautious approach objective)
e.g. build extensions and more stores e.g. buy a supermarket competitor tutor2u
75. Ansoff’s Matrix can be applied to Morrisons, giving the
business a number of different strategic options
Existing Products New Products
Existing Markets
Market Product
Penetration Development
Expand organically in the UK by
building more stores
Develop an online shopping
capability
Expand in the UK by acquisition
of a competitor
Market
Diversification
New Markets
Development
Expand overseas
Develop a broader non-food
Target new customers through the business
development of convenience
stores
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76. Which ever option is selected, decisions need to be taken
about whether or not the growth markets are related
Option Description
Horizontal Grow activities that are competitive with and
Integration complementary to existing activities
(Related Markets)
Business becomes its own supplier (backward integration)
Vertical
or distributor (forward integration)
Integration
Advantages: Secure supply; take more profit from the
(Related Markets)
value chain; create barriers to entry
Disadvantages: More exposed to the same market; does
not necessarily offer economies of scale
Diversification Spread risk by operating in markets that are not directly
competitive or complimentary
(Unrelated
Markets) Advantages: May obtain synergies (e.g. using same
distribution channel)
Disadvantages: Limited experience in separate markets
increases risk of things going wrong; cultural differences
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77. Strategic Option:
Morrisons could expand
organically in the UK by building
more stores
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78. A Market Penetration Strategy:
Organic Growth?
• This option is about generating more food and grocery
sales as well as winning market share from competitors.
Morrisons has a stated aim of increasing its shop floor
space by the end of 2011 by 2 Million square feet of
additional space
Morrisons would focus on:
• Building more store capacity by
– Adding extensions to existing stores to make them bigger by a
combined 1.5 Million square feet by 2011
– New building projects on the edge of towns and in cities where they
have no current presence to include 0.5 Million square feet by 2011
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80. A Market Penetration Strategy:
Growth by Acquisition?
• This option is about generating immediate and significant
growth in market share by acquiring an existing UK
supermarket such as Lidl, Aldi or Iceland.
Morrisons would need to
• Conduct appropriate market research
• Raise the necessary funding in conjunction with
shareholders and/or the banks
• Ensure that the acquisition did not contravene Competition
Commission regulations
• Prepare a plan for corporate integration and the generation
of synergies
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82. A Product Development Strategy:
An online shopping capability?
• This option is about building an online food and grocery
business along the lines of Ocado or Tesco.com.
Morrisons would need to
• Build and launch a robust web application
• Ensure that their stock management and logistics systems
could integrate into the new demand model
• Build or contract a distribution network of vehicles and staff
to deliver food and groceries to homes
• Adapt their marketing campaign
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84. A Market Development Strategy:
Superstores abroad?
• This option involves replicating the Morrisons superstore model in
Europe, America or Asia similar to what Tesco has done.
Morrisons would need to:
• Conduct market research to understand the market for supermarkets in
selected new territories (being alive to the fact that Tesco has struggled
with its ‘Fresh and Easy’ brand in America and found it hard to enter the
Indian market)
• Develop relationships or joint ventures with local producers and
distributors in selected countries
• Ensure that the supply chain can feed demand for Morrisons products
abroad
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85. Strategic Option:
Morrisons could target new
customers through the
development of convenience
stores
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86. A Market Development Strategy:
Smaller, convenience stores?
• This option involves developing smaller stores in town
centres and motorway service areas similar to One Stop or
Tesco Express.
Morrisons would need to
• Identify key locations to target convenience stores
• Get planning permission for these stores and construct
them
• Adapt its Market Street model because it would probably
not be economic or practical to have butchers and bakers
etc in convenience stores
• Modify its marketing campaign
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88. A Diversification Strategy:
Clothes, Electricals and Financial Services?
• This option involves diversifying to target customers who
want to buy a range of products such as clothing, TVs,
telecommunications and bank accounts
Morrisons would need to
• Expand its current non food range considerably
• Build extensions to its stores to create additional space for
the non food product range
• Modify its marketing campaign
• Train the workforce in the sale of these new products
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89. Evaluating the Options – Decision Methods
• Cost / benefit analysis
– Quantifying costs and benefits in monetary terms
– But it is hard to quantify intangibles such as the impact of strategy on culture
• Ranking and scoring
– Rank strategic options by scoring them against criteria (e.g. return on
investment)
• Investment appraisal
– How to address the problem of risk
– All strategies involve uncertainty
– Return on investment: several methods
– Need to include sensitivity analysis (e.g. what are the potential effects if
things go badly wrong?)
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90. Evaluating Morrisons’ Strategic Options:
The key tests
The options can be assessed against three key criteria:
• Suitability: - does the chosen strategy:
– Build on strengths and/or solve weaknesses?
– Exploit opportunities and/or respond to potential threats?
– Satisfy the goals and objectives of the business?
– Fit the culture of the business?
• Acceptability:
– Depends on the views of the key stakeholders
– What level of risk does the business want to take?
• Feasibility:
– What resources are available to support the strategy? (e.g. finance,
experience; management resources)
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91. Strategic Option:
Organic Growth
Suitability
Fits well with existing strategy
Morrisons has experience of this approach
Good fit with the corporate growth objectives
Acceptability
Enables Morrison to protect its USP
Low risk because this is core business – more of the same
Could be considered as a rather conservative approach if it means that
Morrisons miss out on the opportunity to grow through NPD or Market
Development or Diversification
Feasibility
Probably the easiest of the six options
Financial capital is available for investment in expansion
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92. Strategic Option:
Growth by Acquisition
Suitability
Fits with previous experience of growth by acquisition
Logical to expand through horizontal integration in this market
Acceptability
Shareholders might be unsupportive given their difficult experience with the
Safeway acquisition in 2005, although the Somerfield store integration has gone
better
Medium to high risk because acquisitions and the expected synergies are hard to
deliver
Feasibility
Would require an integration strategy
Would require significant capital to purchase the competitor
Could have problems with the Competition Commission
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93. Strategic Option:
An online shopping capability
Suitability
Supports the corporate growth objective
Does not really build upon Morrisons’ current strengths which are based on
in-store food and grocery sales
Would represent a cultural shift
Acceptability
Medium risk since they have no experience of this approach, although many
other supermarkets have made it work successfully
None of the Directors has expressed any real interest in this business so far
Feasibility
Reasonably easy to design and launch the technology
More work required to set up the distribution and delivery network and to
integrate it within their core business
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94. Strategic Option:
Superstores abroad
Suitability
There may be gaps in the market in new territories, especially for “British”
products
The strategy is a good fit with their growth objective
Acceptability
Morrisons has no experience of working abroad, it is a very British company
and is still trying to gain a nationwide coverage in its home market, the UK
High/Medium risk given the difficulties that Tesco have experienced
Feasibility
Financial investment is probably available for a phased expansion into new
territories
Requires significant up front work building joint ventures and local
partnerships abroad
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95. Strategic Option:
Smaller, convenience stores
Suitability
This market has become crowded and Morrisons would be a late arrival
Morrisons has no experience with smaller convenience stores
The business model and ‘fresh’ mantra might have to be changed
Acceptability
Medium risk, but could be a slow return on investment
Would require a cultural shift from their current model
Feasibility
Investment capital is available for expansion
Would require the acquisition of some convenience store retail skills and
experience
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96. Strategic Option:
Clothes, Electricals and Financial Services
Suitability
Extending their retail skills into other areas has worked for other
supermarkets
Morrisons has already put a toe in the water in the non food sector
It does not fit with their vision statement
Acceptability
Could be acceptable for directors who have already sanctioned limited
activity in this arena
Low/Medium risk, unknown returns
Feasibility
Need for staff training, but they could use the Training Academy for this
Need for more store space – this is possible
Need to build relationships with product suppliers
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97. Here are some things that you could do before the
examinations in January and June 2011
Primary Research
• If your school is within travelling distance of Morrisons’ Head Office in Bradford or one
of their regional distribution centres, you could ask if they will allow you to visit
• Go shopping at a Morrisons supermarket
– Have a look at the layout of the store
– Review the various products sold
– Talk to Morrisons employees about what it is really like to work there
• Interview customers who shop at Morrisons and ask them
– Why they prefer Morrisons to Tesco, J Sainsbury, Asda, Waitrose etc.
– What they don’t like about Morrisons
Secondary Research
• Keep up to date with market developments on a weekly basis by using your search
engine to trawl the web for
– information and announcements about Morrisons (the case study is written a long time in advance
of your examination, so you can expect updated accounts, sales figures and developments at
Morrisons between now and June 2011)
– articles and views about developments in supermarket retailing across the world
– Web 2.0 information (blogs, twitter, internet discussion forums, customer feedback sites etc.)
– Rises and falls in the Morrison share price on the London Stock Exchange
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