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Wm Morrison Supermarkets PLC      better known as         “Morrisons”     Author: Mark Tottman                            ...
Opening thought…  “A person buying ordinaryproducts in a supermarket is in    touch with his deepest          emotions”   ...
Strategy Toolkit Contents•   Introduction•   Thinking strategically•   Strategic analysis of Morrisons’ business•   Strate...
Introduction•   This presentation reviews the market for supermarkets and takes you through    the key corporate strategy ...
Morrisons and this Toolkit     What We Have Done•   Worked carefully through the case study – like you should too•   Analy...
How to Work Through This Presentation                     Read the Morrisons case study carefully;                     stu...
Thinking Strategically                         tutor2u
Thinking strategically means imagining YOU are sitting at the Morrisonsboardroom table in Bradford with Dalton Philips, th...
Directors do not concern themselves with day-to-   day operational details – neither should you             Dalton Philips...
Corporate Strategy involves taking decisions                 • Decisions often need to be taken                   quickly ...
Be careful with your SWOT Analysis – don’t        believe management hype!Strengths              …these are ONLY factors w...
All businesses have problems – but they are         rarely as bad as they look                     Not every problem or is...
Strategic Analysis of     Morrisons                        tutor2u
Market Overview: SupermarketsMarket Size• The UK grocery market is worth £97B• The market is growing fast at 20-25% pa by ...
The Volume Competitors•  Tesco Plc.   The UKs largest and most successful supermarket chain, with a market share of 31%. T...
Some Smaller and Niche Competitors•  Waitrose – owned by the John Lewis Partnership, Waitrose is an up-market supermarket ...
Market Shares in the Supermarket Industry353025201510 5 0     Others includes Marks and Spencer, Budgens, Costcutter, Spar...
Market Strategies seen in the industry so far  Four strategic approaches (as defined in the Ansoff Matrix) have been  depl...
A Brief History of the Development of Morrisons•    In 1899, William Morrison, an egg and butter merchant, started Morriso...
Morrisons Today•   Wm Morrison Supermarkets PLC is a UK based company engaged in the business of    food and grocery retai...
Morrisons’ Current Corporate Strategy•   Morrisons’ Vision is “To be food specialist for everyone”•   Its three brand valu...
Morrisons Business Model:     A vertically integrated approach which is different from                        other superm...
Rationale Behind Morrison’s Business Model     Sourcing &                                                                 ...
Morrisons ownership of its supply chain includes          some newly acquired firmsWholly-owned subsidiaries of Wm Morriso...
Morrisons’ ability to compete successfully with othersupermarkets will be affected by the company’s strengths             ...
MARKETING:    Morrisons has a very clear Unique Selling Point     Morrisons does not just compete on price. Morrisons is d...
MARKETING:    There is a range of Products and Prices, but is it broad       enough to be the food specialist for everyone...
MARKETING:    Place – “Market Street” is a successful store format, but                  are there enough of them?•     Mo...
MARKETING:    Morrisons has recently changed its Promotional and TV advertising          campaign to emphasise its usp and...
MARKETING:The ‘Let’s Grow’ voucher scheme is targeted at freshness,              food production and schools•   Morrisons ...
OPERATIONS:Morrison is a producer as well as a retailer, but how much of an advantage is it to own their means of producti...
OPERATIONS:    Morrisons distributes on a national scale, but needs to become a      nationwide operator to achieve furthe...
OPERATIONS:          Product Quality, Education and TrainingQuality•  In order to provide the very best fresh produce at g...
HUMAN RESOURCES:                   Morrisons integrates its core values                    within its HR strategy and cult...
HUMAN RESOURCES:  Morrisons offers a variety of jobs for a range of talents from school leavers to graduates to experience...
HUMAN RESOURCES:      Morrisons’s growth has meant they have been able to create and    recruit new jobs despite the recen...
HUMAN RESOURCES:     Morrisons spends significant time and money on its        quality training and development programme•...
HUMAN RESOURCES:Morrisons offers a range of extrinsic and intrinsic rewards       to support the motivation of their workf...
HUMAN RESOURCES:Continuous communication and employee engagement is      an important component of the HR strategy•   In N...
HUMAN RESOURCES:             ...but is it all good news within HR?           You need to treat the evidence critically...•...
FINANCE:An analysis of the Profit & Loss Account shows a healthy       level of profitability and good cost controlProfit ...
FINANCE:     Morrisons has not been shy to invest money in           acquisitions and store expansions• Morrisons is a top...
FINANCE:      Morrisons key ratios show real financial strength,    although it must be careful about short term liquidity...
Summary of Morrisons’ Strengths and Weaknesses                            Strengths                           WeaknessesMa...
There are several externalinfluences outside Morrison’s     control which create  opportunities and threats               ...
Political (and Legal)•   UK and EU legislation is applied to UK food retailers covering issues such as planning, licensing...
EconomicOpportunities• Grocery sector is less prone to fluctuations in the economy because  people need to eat    – During...
Social (and Environmantal)Opportunities• Consumers have increasingly exotic tastes and desire variety, choice and value• U...
TechnologicalOpportunities• The application of increasingly sophisticated IT systems for logistics  management can help su...
SWOT Analysis – A Summary         Strengths                           Weaknesses• Strong USP                         • Nee...
Strategic Analysis:                    Michael Porter’s Five Forces Model                                                 ...
Key Strategy Issue:To what extent does Morrisons     achieve its vision?                                tutor2u
Is Morrisons a fresh and value               food specialist for everyone?• In many ways, Morrisons does achieve its visio...
Key Strategy Issue:Does Morrisons look a bit like Tescos did ten years ago?                                 tutor2u
Morrisons needs to consider its           current market penetration strategy and           whether it should expand in ot...
Key Strategy Issue:Should Morrisons construct anew store on the basis of the information in Evidence D?                   ...
The proposed store construction can be evaluated bydrawing a network diagram and assessing the critical path•   Evidence D...
The network diagram shows that the proposed        store construction will take 51 weeks                                  ...
Some conclusions and questions arise from the networkdiagram. And remember it is only a proposal at this stageBusiness Pla...
Network Diagrams:      They are useful to some extent, but beware...The advantages of Network Diagrams and CPA are that th...
Key Strategy Issue:To what extent does Morrisons   achieve Corporate Social       Responsibility?                         ...
Morrisons is firmly committed to achieving CSR, but there       are some difficulties with their approach?•    Morrisons h...
Key Strategy Issue:   Morrisons’ success will beaffected by its corporate culture  and the ambitions of DaltonPhilips, the...
Morrisons culture is changing•   Morrisons has its origins as a budget, pie selling traditional Northern retailer     –   ...
Health warning for Morrisons        There is a limited amount         of evidence in the case         study so it is diffi...
Strategic Options for     Morrisons                        tutor2u
The work of Michael Porter: Morrisons’ strategy needs to            reflect its competitive advantage•   Resource advantag...
Porter identified three generic strategies against which               Morrisons can be evaluatedGeneric           What do...
Applying Porter’s Strategy Matrix to Morrisons indicates      that a Cost Leadership strategy is appropriate Broad (market...
Assessing the Strategic Options available to MorrisonsGeneric strategies: businesses have three strategic options:1. Retre...
The Ansoff Matrix can be used to help make      decisions about products and markets• Decisions about what products to sel...
Ansoff Matrix:                        Products and Markets                   Existing Products     New ProductsExisting Ma...
There are two choices to be made about how a business should invest in a growth strategy             Organic Growth       ...
Ansoff’s Matrix can be applied to Morrisons, giving the  business a number of different strategic options                 ...
Which ever option is selected, decisions need to be taken  about whether or not the growth markets are related  Option    ...
Strategic Option:    Morrisons could expandorganically in the UK by building          more stores                         ...
A Market Penetration Strategy:                      Organic Growth?• This option is about generating more food and grocery...
Strategic Option:Morrisons could expand in the UK by the acquisition of a         competitor                              ...
A Market Penetration Strategy:                 Growth by Acquisition?• This option is about generating immediate and signi...
Strategic Option:Morrisons could develop anonline shopping capability                             tutor2u
A Product Development Strategy:              An online shopping capability?• This option is about building an online food ...
Strategic Option:Morrisons could expand       overseas                          tutor2u
A Market Development Strategy:                     Superstores abroad?• This option involves replicating the Morrisons sup...
Strategic Option: Morrisons could target new  customers through thedevelopment of convenience           stores            ...
A Market Development Strategy:              Smaller, convenience stores?• This option involves developing smaller stores i...
Strategic Option:Morrisons could develop abroader non food business                            tutor2u
A Diversification Strategy:       Clothes, Electricals and Financial Services?• This option involves diversifying to targe...
Evaluating the Options – Decision Methods• Cost / benefit analysis    – Quantifying costs and benefits in monetary terms  ...
Evaluating Morrisons’ Strategic Options:                     The key testsThe options can be assessed against three key cr...
Strategic Option:                        Organic GrowthSuitability Fits well with existing strategy Morrisons has experi...
Strategic Option:                    Growth by AcquisitionSuitability Fits with previous experience of growth by acquisit...
Strategic Option:              An online shopping capabilitySuitability Supports the corporate growth objective Does not...
Strategic Option:                     Superstores abroadSuitability There may be gaps in the market in new territories, e...
Strategic Option:              Smaller, convenience storesSuitability This market has become crowded and Morrisons would ...
Morrisons: Analysis of Pre-Seen Case Study
Morrisons: Analysis of Pre-Seen Case Study
Morrisons: Analysis of Pre-Seen Case Study
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Morrisons: Analysis of Pre-Seen Case Study

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Morrisons: Analysis of Pre-Seen Case Study

  1. 1. tutor2u
  2. 2. Wm Morrison Supermarkets PLC better known as “Morrisons” Author: Mark Tottman tutor2u
  3. 3. Opening thought… “A person buying ordinaryproducts in a supermarket is in touch with his deepest emotions” JK Galbraith tutor2u
  4. 4. Strategy Toolkit Contents• Introduction• Thinking strategically• Strategic analysis of Morrisons’ business• Strategic options for Morrisons tutor2u
  5. 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 tutor2u
  6. 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! tutor2u
  7. 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 tutor2u
  8. 8. Thinking Strategically tutor2u
  9. 9. Thinking strategically means imagining YOU are sitting at the Morrisonsboardroom 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… tutor2u
  10. 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 tutor2u
  11. 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? tutor2u
  12. 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. tutor2u
  13. 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 tutor2u
  14. 14. Strategic Analysis of Morrisons tutor2u
  15. 15. Market Overview: SupermarketsMarket 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 groceriesMarket 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 acquisitionsCustomers• 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 tutor2u
  16. 16. The Volume Competitors• Tesco Plc. The UKs 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 companys 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 tutor2u
  17. 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 tutor2u
  18. 18. Market Shares in the Supermarket Industry353025201510 5 0 Others includes Marks and Spencer, Budgens, Costcutter, Spar etc tutor2u
  19. 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 andmore diversified than Morrisons’ core offer of food and groceries (plus fuel) tutor2u
  20. 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 tutor2u
  21. 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 tutor2u
  22. 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 tutor2u
  23. 23. Morrisons Business Model: A vertically integrated approach which is different from other supermarkets Sourcing & Market Production Distribution Selection Street100% British beef,pork, lamb, poultry 12 distribution 12 distribution100% sustainable centres centres fresh fish Ownership of 425 Stores 3 bakeries across the UK100% 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. tutor2u
  24. 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 tutor2u
  25. 25. Morrisons ownership of its supply chain includes some newly acquired firmsWholly-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 retailerIn 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. tutor2u
  26. 26. Morrisons’ ability to compete successfully with othersupermarkets will be affected by the company’s strengths and weaknessesMarketing Operations Key Strategy Question: What are Morrisons’ Strengths, Weaknesses and Issues in its four main business activities?HumanResources Finance tutor2u
  27. 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) tutor2u
  28. 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 timesBut• 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. 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 butchers 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 tutor2u
  30. 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 tutor2u
  31. 31. MARKETING:The ‘Let’s Grow’ voucher scheme is targeted at freshness, food production and schools• Morrisons promotional strategy also includes its Lets 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. tutor2u
  32. 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?ProductionMorrisons 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 chainBut• 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. 33. OPERATIONS: Morrisons distributes on a national scale, but needs to become a nationwide operator to achieve further cost reductions and economies of scaleDistribution 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 tutor2u
  34. 34. OPERATIONS: Product Quality, Education and TrainingQuality• 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) tutor2u
  35. 35. HUMAN RESOURCES: Morrisons integrates its core values within its HR strategy and cultureStrategy• 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 the growing demands of supermarket retailing tutor2u
  36. 36. HUMAN RESOURCES: Morrisons offers a variety of jobs for a range of talents from school leavers to graduates to experienced peopleHead 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 tutor2u
  37. 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. tutor2u
  38. 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. tutor2u
  39. 39. HUMAN RESOURCES:Morrisons offers a range of extrinsic and intrinsic rewards to support the motivation of their workforceExtrinsic 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. tutor2u
  40. 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. tutor2u
  41. 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? tutor2u
  42. 42. FINANCE:An analysis of the Profit & Loss Account shows a healthy level of profitability and good cost controlProfit and Loss Account % Change Profitability Ratios£Ms 2010 2009 2008 2009-10 2008-9 2010 2009 2008Turnover 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 MarginOther operating income 65 37 30Admin expenses / overheads -224 -281 -268 -20% 5%Property transactions 4 2 32Operating Profit (Net Profit) 907 671 612 35% 10% 5.9% 4.6% 4.7%Net Profit MarginFinance Income/Interest -49 -16Profit 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 improvementBut• Although Net Profit margins are higher than Sainsbury (3.6%), they are slightly lower than Tesco (6.0%) tutor2u
  43. 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 tutor2u
  44. 44. FINANCE: Morrisons key ratios show real financial strength, although it must be careful about short term liquidity 2010 2009 2008Current ratio 0.51 0.53 0.49Quick ratio 0.24 0.28 0.25Gearing ratio (%) 20.0 27.1 24.3Earnings per Share (p) 22.8 17.4 20.8Dividend per share (p) 8.2 5.8 4.8ROCE (%) 13 12 12P/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 2010But• 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 tutor2u
  45. 45. Summary of Morrisons’ Strengths and Weaknesses Strengths WeaknessesMarketing Strong USP: Fresh, Value and Service No convenience stores New promotional message No online product range Limited non food offeringOperations 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 StreetHuman Own training academy Staff turnoverResourcesFinance 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 tutor2u
  46. 46. There are several externalinfluences outside Morrison’s control which create opportunities and threats tutor2u
  47. 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 publics health and consumer interests in relation to food safety. Food hygiene is monitored by the Environmental Health DepartmentOpportunities• Reduced fat in foods• Food miles labelling and carbon footprint• Better relationships with National Farmers UnionThreats• 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 tutor2u
  48. 48. EconomicOpportunities• 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 tutor2u
  49. 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 tutor2u
  50. 50. TechnologicalOpportunities• The application of increasingly sophisticated IT systems for logistics management can help supermarkets to optimize their supply chains, speed up delivery and facilitate storage managementThreats• 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 tutor2u
  51. 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 tutor2u
  52. 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 tutor2u
  53. 53. Key Strategy Issue:To what extent does Morrisons achieve its vision? tutor2u
  54. 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 tutor2u
  55. 55. Key Strategy Issue:Does Morrisons look a bit like Tescos did ten years ago? tutor2u
  56. 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 tutor2u
  57. 57. Key Strategy Issue:Should Morrisons construct anew store on the basis of the information in Evidence D? tutor2u
  58. 58. The proposed store construction can be evaluated bydrawing 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. tutor2u
  59. 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 511 2 3 4 8 0 8 23 9 32 5 51 B D 14 8 15KeyA Foundations F External window and doorsB Drainage G Internal floor tilingC Erect steel frame H CeilingsD Brickwork and blockwork I Joinery and internal doorsE Roof structure J Decoration K Fixtures and fittings Critical path 6 Duration 4 Float tutor2u
  60. 60. Some conclusions and questions arise from the networkdiagram. And remember it is only a proposal at this stageBusiness 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. 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 deliveredButThe 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 unexpectedRemember - 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 tutor2u
  62. 62. Key Strategy Issue:To what extent does Morrisons achieve Corporate Social Responsibility? tutor2u
  63. 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 2005But• Morrisons still use plastic bags which take hundreds of years to biodegrade• Morrisons sells fossil fuels which are bad for the environmentSociety - 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 themBut• People have to drive to Morrisons stores. This is at odds with a healthy lifestyle and reduced Carbon FootprintBusiness - 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. 64. Key Strategy Issue: Morrisons’ success will beaffected by its corporate culture and the ambitions of DaltonPhilips, the new Chief Executive tutor2u
  65. 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 tutor2u
  66. 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 tutor2u
  67. 67. Strategic Options for Morrisons tutor2u
  68. 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 tutor2u
  69. 69. Porter identified three generic strategies against which Morrisons can be evaluatedGeneric What does it mean? What is required?StrategyCost Unit costs are lower than competitors Up front investment inLeadership because of economies of scale, good gaining market share Yes production processes and efficient followed by running a very resource allocation tight shipDifferentiation 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 productsFocus 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) tutor2u
  70. 70. Applying Porter’s Strategy Matrix to Morrisons indicates that a Cost Leadership strategy is appropriate Broad (market-wide) Cost leadership Differentiation strategy strategyCompetitive MorrisonsScopeNarrow Focus strategy Focus strategy(market segment) (low cost) (differentiation) Low Cost Differentiated (product uniqueness) Competitive Advantage tutor2u
  71. 71. Assessing the Strategic Options available to MorrisonsGeneric strategies: businesses have three strategic options:1. Retrenchment: this is not applicable to Morrisons2. 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 UK3. 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 tutor2u
  72. 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 tutor2u
  73. 73. Ansoff Matrix: Products and Markets Existing Products New ProductsExisting Markets Market Product Penetration DevelopmentNew Markets Market Diversification Development tutor2u
  74. 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. 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 tutor2u
  76. 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 tutor2u
  77. 77. Strategic Option: Morrisons could expandorganically in the UK by building more stores tutor2u
  78. 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 spaceMorrisons 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 tutor2u
  79. 79. Strategic Option:Morrisons could expand in the UK by the acquisition of a competitor tutor2u
  80. 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 tutor2u
  81. 81. Strategic Option:Morrisons could develop anonline shopping capability tutor2u
  82. 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 tutor2u
  83. 83. Strategic Option:Morrisons could expand overseas tutor2u
  84. 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 tutor2u
  85. 85. Strategic Option: Morrisons could target new customers through thedevelopment of convenience stores tutor2u
  86. 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 tutor2u
  87. 87. Strategic Option:Morrisons could develop abroader non food business tutor2u
  88. 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 accountsMorrisons 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 tutor2u
  89. 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?) tutor2u
  90. 90. Evaluating Morrisons’ Strategic Options: The key testsThe 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) tutor2u
  91. 91. Strategic Option: Organic GrowthSuitability Fits well with existing strategy Morrisons has experience of this approach Good fit with the corporate growth objectivesAcceptability 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 thatMorrisons miss out on the opportunity to grow through NPD or MarketDevelopment or DiversificationFeasibility Probably the easiest of the six options Financial capital is available for investment in expansion tutor2u
  92. 92. Strategic Option: Growth by AcquisitionSuitability Fits with previous experience of growth by acquisition Logical to expand through horizontal integration in this marketAcceptability Shareholders might be unsupportive given their difficult experience with theSafeway acquisition in 2005, although the Somerfield store integration has gonebetter Medium to high risk because acquisitions and the expected synergies are hard todeliverFeasibility Would require an integration strategy Would require significant capital to purchase the competitor Could have problems with the Competition Commission tutor2u
  93. 93. Strategic Option: An online shopping capabilitySuitability Supports the corporate growth objective Does not really build upon Morrisons’ current strengths which are based onin-store food and grocery sales Would represent a cultural shiftAcceptability Medium risk since they have no experience of this approach, although manyother supermarkets have made it work successfully None of the Directors has expressed any real interest in this business so farFeasibility Reasonably easy to design and launch the technology More work required to set up the distribution and delivery network and tointegrate it within their core business tutor2u
  94. 94. Strategic Option: Superstores abroadSuitability There may be gaps in the market in new territories, especially for “British”products The strategy is a good fit with their growth objectiveAcceptability Morrisons has no experience of working abroad, it is a very British companyand is still trying to gain a nationwide coverage in its home market, the UK High/Medium risk given the difficulties that Tesco have experiencedFeasibility Financial investment is probably available for a phased expansion into newterritories Requires significant up front work building joint ventures and localpartnerships abroad tutor2u
  95. 95. Strategic Option: Smaller, convenience storesSuitability 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 changedAcceptability Medium risk, but could be a slow return on investment Would require a cultural shift from their current modelFeasibility Investment capital is available for expansion Would require the acquisition of some convenience store retail skills andexperience tutor2u

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