One example of Tests adapting is to accommodate an increased demand for organic products. Technological Factors Technology is a major element which has influenced the development of many of the Tests products. The new technologies benefit both customers and the company: customer satisfaction increases because goods are available, services can become more personalized and shopping more convenient. Tests utilizes these technologies: * Wireless devices * Intelligent scale * Electronic shelf labeling * Self check-out machine * Radio Frequency Identification (REID).
The use of Electronic Point of Sale (Eposes) has improved efficiency of distribution and stocking, with needs being communicated almost in real time to the supplier (Finch, 2004). Environmental Factors In 2003, there have been increased pressure on companies and managers to acknowledge their responsibility to society, and act in a way which benefits society overall (Lingered and Hinged, 2003). Grassier and Scott (2004) state that in 2003 government intended to launch a strategy for sustainable consumption and production to cut waste reduce consumption of resources and minimize environmental damage. Collative Factors Various government legislations and policies have direct impact on Testes performance.
Most large stores has built their power due to operating efficiency, one-stop shopping. This has impacted on small traditional shops, like butchers and bakers. This creates barrier for new companies wanting to enter the grocery market because its difficult to raise sufficient capital because of large fixed costs and developed supply chains. Other barriers are economies Of scale and differentiation achieved by Tests and USDA through aggressive operational tactics in product development, promotions and good distribution.
Bargaining Power of Suppliers Stores like Tests negotiate better promotional prices from suppliers that small chains are unable to do[ Ritz (2005)]. In return, UK suppliers are heartened by the ability of large retailers to source their products from abroad at cheaper deals. Bargaining Power of Customers Deco’s famous loyalty card – Cellular is most successful customer retention strategy that increases profitability of Deco’s. It helps meet customer needs, customizing service ensure low prices, better choices, constant flow of in- store promotions enables Tests to control and retain customers.
Threat of Substitutes General substitution reduces demand for a specific product, as there is a threat of consumers switching to the alternatives Porter M. (1980). In this industry this is in the form of product-for-product or substitute. Bargaining Power of Competitors I-J grocery retailers has had to be innovative to maintain and increase market share. For Tests this includes development of different trading methods I. E. E-retailing, in response to changes in consumer behavior.
After close evaluation of external analysis of Tests and SOOT analysis in Appendix 1, it is good to consider internal operational effectiveness of Tests to identify Deco’s critical success factors. Branding and Reputation Companies have to focus on selling brands before the product. Tests has ransomed the basic brand into the specialized brands, through carefully branded packaging and promotion of an “every penny counts”. Tests has a strong brand image, and is known for good quality, trustworthy goods that’s excellent value.
Supplier Management Tests does sources goods from overseas manufacturers who are competitive on price and volumes. However Tests have been supporting British jobs and expertise by encouraging large branded suppliers to develop exclusive production facilities. But in recent years the company has realizes the need to look abroad for products not available in ELK, but tried to do it through long- established UK partners. As a major retailer selling diverse product range, they work with many different suppliers around the world, with employees from many different cultures and ethnic groups.
Therefore, it is the company policy and company’s main approach to have unique relationships with suppliers. ANALYSIS OF RESOURCES, COMPETENCE AND CULTURE SOOT Analysis Tests is aimed at the broad middle mass-market, it has maintained its position through a clear focus, well targeted product offer and excellent record in product innovation. Tests also leads the world in online grocery retailing. The full SOOT analysis of Tests is presented in Appendix 1, summarizing the key issues from the business environment and the strategic capability, including resources of Tests that are most likely to impact on strategy development.
Core Competence Superior performance, according to Johnson and Schools (2003), has to be determined by the way in which company’s resources are used to create competence in the organizational activities. Core competencies are activities that critically underpin the company’s competitive advantage. The goal for Tests management is to focus the attention on competencies that really affect competitive advantage. Core competences framework suggests three factors, which can help to identify core competences: Provide potential access to a wide variety of markets: enables the creation of new products and services.
Tests is recognized as the company, providing the most custom used and efficient service, based on a good customer relationship management. Makes a significant contribution delivering a fundamental customer benefit: Tests was the first UK grocer to launch a loyalty card and has been the most effective. Finch (2004) claims that until recently, it was the Only grocer to use the information to mail customers every month. Difficult for competitors to imitate highlights the need for a core competence to be competitively unique.
This indicated the importance of product differentiation. Applying this framework to Tests shows that in order to be successful it has to base its business strategy on these capabilities. In the external environment, the level of competition is not completely under the retailer’s control, however, to compete effectively Tests have to identify its core competences and use them for company’s advantage. DECO’S STRATEGIC OPTIONS: GENERIC STRATEGIES Generic Strategies developed by Porter help Tests to acknowledge sustainable competitive advantage they should follow.
The strategy of cost leadership is where Tests can strive to have the lowest costs and offer its products and services to a broad market at the lowest prices. This strategy is based on Deco’s ability to control their operating costs so that they are able to price their products competitively and be able to generate high profit margins, therefore having a significant competitive advantage. If Tests uses another strategy of differentiation, than it has to try to offer services and products with unique features that customer’s value.
The last strategy of Ochs can be either a cost leadership or differentiation strategy aimed toward a narrow, focused market. In pursuing a cost leadership strategy Tests focuses on the creation of internal efficiencies that will help them withstand external pressures. CONCLUSION In a rapidly changing business environment with a high competitors’ pressure Tests have to adopt new strategies or diversified the existing in order to sustain its leading market position. The company must constantly adapt to the fast changing circumstances.
Strategy formulation should therefore be regarded as a process of continuous learning, which includes learning about he goals, the effect of possible actions towards these goals and how to implement and execute these actions. APPENDIX 1 . SOOT ANALYSIS: TESTS Source: Minute Report, Denominator Reports, Tests Case Studies Strengths increasing market share: Tests holds a 13% share of the UK retail market. Its multi-format capability means that it will continue to grow share in food, while increasing space contribution from hypermarkets will allow it to drive a higher share in non-food.
Deco’s general growth and ROI show no sign Of abating: In the KICK, Deco’s late 2002 investment into West-midlands based nonviolence store group T;S was billed as the most aggressive move into the neighborhood market by a big-name retailer so far. The deal has turned Tests into the country’s second biggest convenience store chain after the Co-operative Group, and the company also plans to open up 59 new stores in the UK this year. Tests has grown its non-food division to the extent that its revenues now total 23% of total group earnings.
Deco’s international business segment is growing steadily, and is predicted to contribute nearly a quarter of group profits over the next five years. If geographical spread entities to grow, this will ensure Deco’s continued regional strength. Insurance: In fiscal 2003 Tests personal Finance reached the milestone Of one million motor insurance policies, making it the fastest growing motor insurance provider ever. The group’s instant travel insurance allows Cellular holders to buy their holiday insurance conveniently at the checkout.
Pet insurance now has over 330,000 cats and dogs covered, while the life insurance policy followed on from the success of last year, when it was voted The Most Competitive Life Insurance Provider in the Moneybag’s Awards 2003. Tests online: Tests. Mom is the world’s biggest online supermarket and this year the group had sales of over IEEE million, an increase of 29% on last year. Tests online now operates in over 270 stores around the country, covering 96% of the I-J. With over a million households nationwide having used the company’s online services, the company has a strong platform to further develop this revenue stream.
Brand value: Profits for Deco’s operations in Europe, Asia and Ireland increased by 78% during the last fiscal year. The company has a strong brand image, and is associated with good quality, trustworthy goods that represent excellent value. Deco’s innovative ways of improving the customer shopping experience, as well as its efforts to branch out into finance and insurance have also capitalized on this. UK market leadership reinforced: Since acquiring number one ranking in 1996, Tests has developed a successful multiform strategy that has accelerated its advantage.
Its UK sales are now 71 % larger than Sunburst’s. Also the Competition Commission’s report makes it very difficult for a competitor to challenge its scale and has effectively scupper Wall-Mart’s chances of stealing I-J leadership. Therefore, Tests is in an enormously strong position n its domestic market. Weaknesses Reliance upon the UK market: Although international business is still growing, and is expected to contribute greater amounts to Deco’s profits over the next few years, the company is still highly dependent on the UK market (73. % of 2003 revenues). While this isn’t a major weakness in the short term, any changes in the UK supermarket industry over the next year for example, like the Morrison group successfully purchasing the Safety chain could alter the balance of UK supermarket power, and affect share. Debt reduction: Tests is not expected to reduce its debt until at least 2006. Tests has a large capital expenditure program mainly due to its huge investment in space for new stores. Since its expansion is so aggressive, Tests has little free cash for any other operations.
Signs point to serial acquisitions: With an enterprise value of EWE billion, Tests clearly has enormous firepower. Also, its product range is vast and almost any acquisition can be justified, particularly in the K. While ‘fill the gap’ strategy would be useful to the company, as has been the case with the UK convenience market, there is the danger of Tests becoming a serial acquirer, as this tends to reduce earnings visibility and quality. Opportunities Non-food retail: The growth in Deco’s hypermarket format in the UK means that there are expectations of seeing its 13% share of retail sales climb sharply over the next few years.
It can use its footfall and low cost structure together with improved merchandising skills to add another leg to growth. Equally, its growth overseas will further increase earnings and scale, taking Tests onto the virtuous circle of growth. It is estimated that Deco’s non-food sales will double over the next four years. Worldwide it has sales of E billion in non-food, some 23% of the total. Its aim to be ‘as strong in non-food as we re in food’, no longer sounds like the consultancy-speak that it once did, and they are getting there using the basic tenets of value, choice and convenience that have been so successful in food.
Around half Of new space opened in the UK last year was for non-food and the result has been to increase its market share from 5% to 6% and its overall share of UK retail sales has increased by 100 basis points to 12. 8%. The company’s telecoms venture is the latest stage in its strategy to develop popular retail services. It has repeated its approach in banking, by capitalizing on its brand. Health and beauty: Deco’s UK health ND beauty ranges continue to grow, and it is currently the fastest growing skincare retailer in the market.
The company has a volume market-leading position in both toiletries and healthcare and is number one retailer in the baby goods markets. Across all health and beauty ranges Tests continues to invest in price to deliver the value customers have come to expect and this year invested EWE million on health and beauty pricing alone. The company now has 1 9 stores with opticians and nearly 200 stores with pharmacies. Further international growth: Tests now operates in six countries in Europe in edition to the UK; the Republic of Ireland, Hungary, Czech Republic, Slovakia, Turkey and Poland.
It also operates in Asia: in South Korea, Thailand, Malaysia, Japan and Taiwan. Seven years ago, its International sales were IEEE million. Now, they are nearly 10 times larger, at almost E billion, with profits of IEEE million. In the current year, Tests will add 2. 5 million square feet to sales area and could well enter another major market. Growing internationally has forced Tests to become serious about hypermarkets and this has had seriously positive implications for growth in the I-J. Tests has armed a strategic relationship with US supermarket, Safety Inc. To take the tests. Mom home shopping model to the US. Telecoms are the latest stage in its strategy to develop popular retail services. It has repeated its approach in banking, by capitalizing on its brand. In 2004 the company plans to enter the Chinese market, as China is one of the largest economies in the world with tremendous forecast growth and will present many opportunities for Tests. The rats UK structural change could spark a price war: The price followers in the UK market are about to become aggressive investors in price, Safety because f new ownership and Ginsburg because of new management.
Morrison is reducing Safety’s prices by up to 6% and Ginsburg is bound to see lower prices as one of the basic changes necessary to drive its recovery. With both USDA and Tests committed to price leadership, this could result in a step down in industry profitability. Overseas returns could fall: The buy case for Tests is predicated around investment overseas driving higher group returns as each country moves past critical mass. This might not happen, either because of economic conditions, competitor action, or failure in Deco’s business model.
It also could come as a consequence of an aggressive move into a larger market, such as China or Japan. Wall-Mart/USDA challenge: Since the US shopping giant Wall-mart purchased USDA, Deco’s rank as the top UK supermarket has been threatened. USDA can now compete extremely well on price and range of goods. For the moment, USDA is the third largest supermarket in the KICK, just behind Sunburst’s and then Tests. However, USDA closed the gap on Sunburst’s in 2003, leaving the company to directly challenge Deco’s dominance. Tests is well aware of this, and has so far been quick to keep up with price cuts or special offers at USDA.