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2. Wm Morrison Supermarkets PLCbetter known as Morrisons Author: Mark Tottmantutor2u 3. Opening thoughtA person buying ordinaryproducts in a supermarket is intouch with his deepestemotions JK Galbraithtutor2u 4. Strategy Toolkit Contents Introduction Thinking strategically Strategic analysis of Morrisons business Strategic options for Morrisonstutor2u 5. Introduction This presentation reviews the market for supermarkets and takes you throughthe key corporate strategy issues facing Morrisons, a public limited companylisted on the London Stock Exchange with its headquarters in Bradford,Yorkshire It is important to remember that, in corporate strategy analysis, there are noright or wrong answers just problems that need addressing and choices thathave to be made The views and opinions expressed in this document are just our opinion.Hopefully you will find them helpful. However, dont forget that you need toform your own views and be ready to explain and justify them in your Unit 4aexamination paper Print this presentation out and add your own notes to it as you work through thecase study or download it onto your laptop and annotate it There are some suggested web links at the end of the presentation for you tofollow 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 issuestutor2u 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 habitof 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 youneed to read it too!) Repeated all your textbook, class, VLE and revision notes on corporate strategy (referback to these as necessary) Provided lots of notes on corporate strategy concepts your textbook, VLE and classnotes should cover those fine. You need to get thinking about supermarkets!tutor2u 7. How to Work Through This Presentation Read the Morrisons case study carefully; study the words; look at all seven piecesStep 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 keyStep 3 strategic issues. Read our sections on the Analysis of Morrisons Business and our thoughtsStep 4 on the Strategic Options for Morrisons Summarise the key points from thisStep 5 presentation in your own revision notes (or scribble all over it) so that you are fully prepared for the Unit 4a papertutor2u 8. Thinking Strategically tutor2u 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. Directors do not concern themselves with day-to- day operational details neither should you Dalton Philips is concerned with questions likeWhat is our How are we doing?What strengths business mission? Can we survive and weaknesses What are our goalswith our current do we have?and objectives? strategy?What resources do What are our we need? How competitorsshould we finance doing?them? Are the sameWhat external How do we exploitactions in the bestfactors influence the opportunitiesinterests of all the our business?available?stakeholders? Think about these questions as you work through the case study tutor2u 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. Be careful with your SWOT Analysis dontbelieve management hype!Strengthsthese are ONLY factors where a businesshas a real competitive advantage. Justbeing good at something is NOT a strength ifyour competitors are good at it too! Mostbusinesses have only a few strengths. Somedont have any.Weaknessesin reality, these are the things that reallystop a business from succeeding. Mostbusinesses have some fundamentalweaknesses but management often ignorethem (and rarely admit them). Your job is totell it as you see it.tutor2u 13. All businesses have problems but they are rarely as bad as they look Not every problem or issue describedin the Morrisons case study is reallyimportant. Dont get too bogged down by what look like numerous issues.Good management is about sorting things outTry to identify the really importantissues, problems or challenges facing Morrisons. These are the strategicchallenges that the company must addresstutor2u 14. Strategic Analysis of Morrisonstutor2u 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 hasprompted a rise in sales of cook at home rangestutor2u 16. The Volume CompetitorsTesco 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.comAsda Group Ltd. In the model of Wal-Mart, the US retail giant which bought it in 1999, Asdas 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 chains 193 outlets for 778M which will push its share of the market up further, giving it a total of 566 stores.www.asda.co.ukJ 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. Some Smaller and Niche CompetitorsWaitrose 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.comMarks & 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.comIceland 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.ukThe Co-operative Group The Co-op has a total market share of around 8%. It is the worlds largest community owned business with 4.5M members and it is the UKs 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.coopLidl - 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.ukAldi 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. Market Shares in the Supermarket Industry353025201510 5 0 Others includes Marks and Spencer, Budgens, Costcutter, Spar etctutor2u 19. Market Strategies seen in the industry so farFour strategic approaches (as defined in the Ansoff Matrix) have beendeployed 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. A Brief History of the Development of MorrisonsIn 1899, William Morrison, an egg and butter merchant, started Morrisons from a market stall in Bradford, YorkshireIn 1958, his son and successor, Ken Morrison , opened the first Morrisons self-service store in Bradford city centreIn 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 ExchangeBy the end of the 1980s, Morrisons operated 46 stores across England , most of which were located in the North of England near the companys Yorkshire base.By 1999, 100 years after its inception, Morrisons had 100 storesIn 2004 Morrisons acquired Safeway (nearly doubling its market share) to become the UKs 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 fathers small market stall into a 13 billion nationwide supermarket chain. The family retains a 15% stake in the businessIn 2009 Morrisons acquired 35 ex-Somerfiield stores from the Co-op giving it an additional 400M of annual turnovertutor2u 21. Morrisons Today Wm Morrison Supermarkets PLC is a UK based company engaged in the business offood and grocery retailing. It is the UKs fourth largest supermarket and is in the top 50FTSE 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 fromWilliam and Ken Morrison coupled with todays modern professionalism injected by thenew 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 anexecutive or board room role. Morrisons has transformed from a budget, pie selling, traditional Northern retailer to amore professional, national organisation with broad appeal. www.morrisons.co.uk tutor2u 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 themost vertically integrated food retailer in Britain, owning abattoirs, fruit and vegetable pack houses, meat andcheese 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 toachieve 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 customerservice. 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 freshand valueMorrisons could be described as having a food offering with broadappeal from Aldi to Waitrosetutor2u 23. Morrisons Business Model: A vertically integrated approach which is different fromother supermarketsSourcing &Market Production DistributionSelection Street100% British beef,pork, lamb, poultry 12 distribution12 distribution100% sustainablecentrescentres fresh fishOwnership of 425 Stores3 bakeriesacross the UK100% own brand6 food & veg packhouses Including in Own fleet of storeCustomersBristish free 1 food prep factory range eggs 3 abattoirs700 tractor unitsbakeries,& 1,800 trailersfishmongers, Regional milkbutchers 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. Rationale Behind Morrisons Business Model Sourcing &MarketProduction Distribution Selection StreetBeing closer toOwning theOwnership andPreparing food in-source and working manufacturing operation of a verystore means:closely with facilities andmodern transport fleetfarmers/producersproducing in-housemeans:means: means that: better control of the supply chain lead ensures speed and faster reaction toprovenance and times are reduced freshness and cost customer trendsquality of foodwhich maximises the control. throughout the day, freshness in-store producing only what and reduces wastethe customer wants development of a Morrisons claims tocost relationship that and costs. have the quickestis reasonable and fair turnaround time reducing waste fromto all parties security of supply is between order andover production, achieveddelivery comparedachieving cost with any other efficiency and sustainable and supermarketkeeping prices low.responsible sourcing food miles close tareto help thereduced becauseenvironmentmany facilities are products are freshly situated o distributionmade. centrestutor2u 25. Morrisons ownership of its supply chain includessome newly acquired firmsWholly-owned subsidiaries of Wm Morrison Supermarkets PLCBos Brothers Fruit and Vegetables BV - produce wholesalerWm Morrison Produce Limited - produce packerFarmers Boy Limited, - manufacturer and distributorNeerock Limited - fresh meat processorRathbone Kear Limited - baker (acquired in 2005)Farock Insurance Company Limited - captive insurerSafeway Overseas Limited - holding companySafeway Overseas Limited - grocery retailerSafeway 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 DumfriesHouse 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 helpingthe 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. Morrisons ability to compete successfully with othersupermarkets will be affected by the companys strengths and weaknessesMarketingOperationsKey Strategy Question: What are Morrisons Strengths, Weaknessesand Issues in its four main business activities?HumanResources Finance tutor2u 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 butchersProduces 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. 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 offuel/petrol A range products is available including green grocery, fish and meat, bakery items, alcoholic and non-alcoholicbeverages, 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 aroundthe 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 regionalproduce 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 andvegetables products Non-food products consist of some essential clothing (underwear, socks, etc) and a wide range of DVDS, CDsand console games. It is currently launching a further 500 non-food, home-ware product lines to complementits food range Sales growth of the Value range have been up 50% in the last year, while sales of the Premium range TheBest are up by 5%. This may reflect the trend for consumers to switch to lower priced products during thecurrent tough economic timesBut Supermarket retailing is all about reacting to markets and understanding what consumers want. Unlike itsmain rivals, Morrisons has: No online food and grocery business A very limited non food offer No loyalty card scheme to track customer trends and offer lapsed customer discounts tutor2u 29. MARKETING:Place Market Street is a successful store format, butare there enough of them? Morrisons has built its reputation around a no-frills store format called MarketStreet . The overall theme of its supermarkets is based on an early 20th centurystreet setting in the north of England positioned around the edge of a store, withmore 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 shopand 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 rangeof 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 thesupermarket trolleys tutor2u 30. MARKETING:Morrisons has recently changed its Promotional and TV advertisingcampaign to emphasise its usp and the business modelIn 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 Sainsburys. The advertisements are designed to show where fresh food comes fromThis 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 brands 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 renewaltutor2u 31. MARKETING:The Lets 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 collectvouchers in-store for every 10 they spend. Vouchers can then be redeemedfor free gardening equipment for schools including seeds, spades, hoes,hosepipes, biodegradable pots, soil testing kits, smocks, sun hats and even astate of the art wormery (which enables Tiger worms to munch their waythrough garden and kitchen waste, producing a nutrient-rich compost for thegarden The aim is to encourage children to grow their own fruit and vegetables and tolink Morrisons with schools and freshness Over 20,000 schools have registered for the programme and Morrisons hasgiven away over 3.2m of gardening equipment The scheme competes with Tescos Schools and Clubs scheme ,andSainsburys Active Kids initiative In 2009 it won the IPA Effectiveness Grand Prix, having generated a claimedROI of 21.57 per 1 spent. Lets Grow ties into the National Curriculum and also supports theGovernments Growing Schools initiative. tutor2u 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 cumulativereduction 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 Estatein 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 theNational Farmers Union of Scotland. It is intended that the farm will become become one of theleading centres of excellence for applied farming research. Owning the means of production (and distribution see next slide) helps to secure continuity in thesupply 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. OPERATIONS:Morrisons distributes on a national scale, but needs to become anationwide 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 eachweek Morrisons has invested heavily in its distribution infrastructure, IT and logistics. Forexample: 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 itcan generate bigger economies of scale, thereby reducing its average unit costs tutor2u 34. OPERATIONS:Product Quality, Education and TrainingQualityIn 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 theseasons.EducationMorrisons 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 nationallyrecognised qualification in Retail Skills. (see HR section) tutor2u 35. HUMAN RESOURCES: Morrisons integrates its core valueswithin its HR strategy and cultureStrategy 131,000 people are employed in the UK which makes it a significant employer. The HRstrategy 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 retailingtutor2u 36. HUMAN RESOURCES:Morrisons offers a variety of jobs for a range of talents from school leavers to graduates to experienced peopleHead OfficeRegional 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 CleanersWhen answering questions in the A2 examination, make sure that you distinguishbetween different types of job/employees because not all workers will be affectedin the same way by Morrisons various HR strategiestutor2u 37. HUMAN RESOURCES:Morrisonss growth has meant they have been able to create andrecruit 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, fishmongeryand bakery The I Want a Fresh Start campaign, launched in 2008, redefined Morrisons approach toattracting 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 joinedthrough 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 theirinduction. tutor2u 38. HUMAN RESOURCES: Morrisons spends significant time and money on itsquality training and development programme In 2009, Morrisons launched The Fresh Food Training Academy to strengthen itsposition as the UKs 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 deliverreadily available, well presented, freshly prepared, quality products, whilst maintainingstandards, reducing wastage and giving great selling and service. In July 2010 more than 24,000 Morrisons staff graduated with Edexcels Level 2 (formerlyNVQ) Diplomas in Retail Skills from the supermarkets Training Academy, therebybecoming officially qualified as bakers, butchers, greengrocers and fishmongers. This initiative reflects current trends in retail training. The number of retail workers acrossthe 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 standardqualifications in 2010, compared with only 20% in 2002.tutor2u 39. HUMAN RESOURCES:Morrisons offers a range of extrinsic and intrinsic rewards to support the motivation of their workforceExtrinsic IntrinsicCompetitive rates of pay Social Committees (e.g. Theatre10% staff discounttrips, Christmas parties, nights out)Free Life AssuranceFundraising events for the Charity ofStaff Profit share and Management Bonus Plan* the Year29 days paid holiday Excellent trainingService award* Career development 5 years = 125 10 years = 250 15 years = 375 20 years = 500Subsidised staff canteenOpportunity to join stakeholder pension schemeOpportunity to join the Share Save schemeHealth car cash plansPremium payments for working on SundaysDiscounts 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 prestigiousindustry awards including Retail Weeks Retailer of the Year for the last twoyears and The Grocers Service and Availability awards. tutor2u 40. HUMAN RESOURCES:Continuous communication and employee engagement isan important component of the HR strategy In November 2008, Morrisons launched Gimme 5 briefings to strengthen itscommunication lines and to create a more committed and productive workplace.These are five minute, face-to-face monthly departmental briefings based onmessages cascaded down through the business, starting with the ChiefExecutive. Workers are encouraged to ask questions and provide feedback onthe 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 allareas of the business, seeking opinion on a range of areas such as jobsatisfaction, team environment and management. All employees participate in either the Profit Share Scheme or ManagementBonus Plan, ensuring that everyone feels a part of the challenges andsuccesses of the organisation.tutor2u 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 remainwith 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 attractgreat pay (e.g. shelf stacker, cashier, cleaner, warehouse worker) There is a transient workforce for these jobs where people are not in thebusiness for the medium to long term (e.g. university students, those whowould rather be working somewhere else) Although Morrisons trains and develops leaders from within, the lasttwo Chief Executives (Bolland and Philips) have both been recruitedfrom outside the business Is this a vindication of the leadership, training and developmentprogramme? tutor2u 42. FINANCE:An analysis of the Profit & Loss Account shows a healthy level of profitability and good cost controlProfit and Loss Account% Change Profitability RatiosMs2010 2009 2008 2009-10 2008-9 2010 20092008Turnover15,410 14,528 12,969 6% 12%Cost of Sales 14,348 13,615 12,151 5% 12%Gross Profit 1,062 913818 16% 12%6.9%6.3%6.3%Gross Profit MarginOther operating income 65 37 30Admin expenses / overheads-224 -281 -268-20%5%Property transactions4232Operating Profit (Net Profit) 907671612 35% 10%5.9%4.6%4.7%Net Profit MarginFinance Income/Interest-49-16Profit before Tax 858655612 31% 7%Taxation-260 -195-5833%236%Profit after Tax598460554 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. 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 portfolioat about 7.5 Billion The share price has fluctuated between 2.60 and 3.00 inlast 12 months As a public limited company, it can raise significant sums ofmoney through the sale of shares and/or through borrowingin 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 storeintegration Morrisons made charitable donations of 1.18M last yeartutor2u 44. FINANCE:Morrisons key ratios show real financial strength,although it must be careful about short term liquidity20102009 2008Current ratio 0.510.53 0.49Quick ratio 0.240.28 0.25Gearing ratio (%) 20.027.1 24.3Earnings per Share (p)22.817.4 20.8Dividend per share (p)8.2 5.84.8ROCE (%)1312 12P/E ratio (times) 14.315.6 15.2 The low gearing ratio (Debt to Equity) is the strongest in the supermarket sector and means thatMorrisons could borrow money in order to expand, especially given that interest rates are currentlyquite 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. Summary of Morrisons Strengths and WeaknessesStrengths WeaknessesMarketingStrong USP: Fresh, Value and Service No convenience stores New promotional messageNo online product rangeLimited non food offeringOperations Local sourcing through British farmers and National rather than producersnationwide coverage limits Produce, pack and supply direct to storeseconomies of scale Own supply chain, own manufacturing sites and Market StreetHumanOwn training academy Staff turnoverResourcesFinanceLow gearingCurrent ratio and Quick ratio Good sales turnover growth are both quite low Rising net profit margin EPS and Net Profit Marginsare lower than Tesco tutor2u 46. There are several externalinfluences outside Morrisons control which createopportunities and threatstutor2u 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 Commissionand Food Standards Act 1999) The British Retail Consortium (BRC) is the main trade body for the food retail industry in the UKrepresenting more than 90% of companies involved in this industry The Food Standards Agency is an independent watchdog established to protect the publics health andconsumer interests in relation to food safety. Food hygiene is monitored by the Environmental HealthDepartmentOpportunitiesReduced fat in foodsFood miles labelling and carbon footprintBetter relationships with National Farmers UnionThreats A significant number of people, such as farmers and countryside groups, oppose the dominance of thesupermarket multiples Government legislation aimed at limiting out-of-town developments can make it difficult forsupermarkets to obtain planning permission for new out-of-town stores Competition Commission rules make it hard for supermarkets to acquire their competitors due to thepossibility that local monopolies will be created tutor2u 48. EconomicOpportunities Grocery sector is less prone to fluctuations in the economy becausepeople need to eat During recession people might eat out less and eat in more which hasallowed retailers like M&S to target promotions such as eat in for two for10 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 programmetutor2u 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 areincreasingly willing to make purchases of non-food items such as clothes, andelectricals through one stop shopping at supermarkets of people travel by car when they go shopping People are becoming more concerned about healthy eating, especially organicfoods, although there remains a strong junk food market Sales from convenience stores are increasing rapidly because they are easy toaccess. People tend to buy luxury food or top ups from them Shoppers like to buy Green food and are becoming more aware of packagingwaste and its disposal The environment and ethically friendly image of companies is welcomed byconsumers.Threats There are strong doubts about the safety and ethics of genetically modified (GM) foodtutor2u 50. TechnologicalOpportunities The application of increasingly sophisticated IT systems for logisticsmanagement 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 andItalian biscuits Targeting bulk buyers steak lover pack 57.15 for 16 steaks 22,000 grocery items including branded products from Pampers, Uncle Bens Ariel, Dolmio, Kraftand Walkerstutor2u 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 businessOpportunities Threats Green, organic, ethical products Competition Commission Food miles and carbon offset Online retailingtutor2u 52. Strategic Analysis:Michael Porters 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 CompetitorsCustomer Power (High) Numerous, diluted suppliers(Medium/High)Easy to switch, especially High threat of vertical integration Some characteristics of an oligopolywithout a loyalty card Limited volume, purchasing power Some product and brandingMany products are very similar Reasonably easy fordifferences, but many products arein different supermarketssupermarkets to switch suppliers the same Sensitive to price changes at Some protection from authorities Steady industry growththe volume end, always lookingand pressure groups Medium/High exit barriers for valueThreat of New Entrants (Medium/Low) Due to the high economies of scale, strong learningcurve effect and large capital requirements, it is hard toenter. Carrefour (worlds second largest retailer) couldenter. Primark could move from clothes to food(discounter) Organisations such as the Post Office or milkcompanies could offer a grocery home delivery service tutor2u 53. Key Strategy Issue:To what extent does Morrisons achieve its vision?tutor2u 54. Is Morrisons a fresh and value food specialist for everyone? In many ways, Morrisons does achieve its vision, especially given thatcustomers have an increasing focus on the provenance, quality andfreshness of the food they buy. Morrisons is also perceived to be goodvalue by its customers.However, the following strategic questions can be discussed. Fresh food - petrol/fuel, which accounts for 20% of Morrisons totalturnover, is not a fresh product and it is not a food product. Specialist - there are other niche food organisations who could claim tobe more specialist than Morrisons in certain segments (e.g. vegan,health foods, kosher, indian/thai/polish, wheat/gluten free) Everyone - lots of people cant easily access a Morrisons supermarketbecause they have no convenience stores, no presence at motorwayservice areas, no online shopping, no overseas stores tutor2u 55. Key Strategy Issue:Does Morrisons look a bit like Tescos did ten years ago? tutor2u 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 inthe food and grocery sector In contrast to the other major UK supermarket groups, its strategy hasbeen predominately based on selling groceries at low prices and doingso 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 doesnot offer its customers an online shopping service Morrisons has not developed the one stop model and has only a verylimited 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 orwhether it needs to change and copy its main rivals in one or more ofthe strategies outlined abovetutor2u 57. Key Strategy Issue:Should Morrisons construct anew store on the basis of the information in Evidence D?tutor2u 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 constructionin the Southern Counties including: Activity Duration Dependencies This is sufficient information to enable the development of a networkdiagram Network diagrams and critical path analysis are used by businesses toplan and deliver potentially complex operations and projects. They arean essential managerial planning tool, enabling managers to allocateresources in the most appropriate manner and to manage the mostcritical activities that are likely to cause delay to the operation or project.tutor2u 59. The network diagram shows that the proposedstore construction will take 51 weeks H 44 J 6 44 87 AC F 36 I 38 K57 62 4 36 2 47 4 4 139908 23E 32G511 23 4808 239 32 5 51 BD14 8 15KeyA FoundationsF External window and doorsB Drainage G Internal floor tilingC Erect steel frameH CeilingsD Brickwork and blockworkI Joinery and internal doorsE Roof structure J Decoration K Fixtures and fittings Critical path6 Duration 4 Floattutor2u 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, soit 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 ConsiderationsBy 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 planActivities 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 timeQuestions 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 beforeundertaking 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 projectstack up against that level? What other investment projects is this one up against and how high does it rank against these projects? Does Morrisons have the necessary financial capital to invest in the project (it probably does!) tutor2u 61. Network Diagrams:They are useful to some extent, but beware...The advantages of Network Diagrams and CPA are that they: Provide decision makers with a picture of a problem, so it easier to interpret Encourage forward planning of all activities, rather than planning on the fly Help to reduce the time lost between activities so projects can be run efficiently and lead times reduced Assist in the management and allocation of resources Improve production efficiency because materials, labour and capital equipment can beordered/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 successfullydeliveredButThe 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 andimplement 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 requiredNot to delete agreed activities in order to speed up the processNot to accept that an activity is complete if it is only 90% doneNot to change the target dates without a very good reason tutor2u 62. Key Strategy Issue:To what extent does Morrisons achieve Corporate Social Responsibility?tutor2u 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. Its 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. Carrierbag 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 offuel 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 forreducing carbon emissions. The accreditation scheme is the worlds first carbon award requiring an organisation tomeasure, manage and reduce its Carbon Footprint and make real reductions year-on-year. Morrisons Carbon Footprinthas 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 Lets 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 managementIt provides easy, practical tips to improve the storage of food and dispels some myths. For example, it highlights thattomatoes 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. Key Strategy Issue: Morrisons success will beaffected by its corporate cultureand the ambitions of DaltonPhilips, the new Chief Executivetutor2u 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 andopened 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 nomember of the Morrison family in an executive or board role As it moves from a national to a nationwide organisation, Morrisons is adopting anincreasingly professional, process driven, businesslike approach This approach was needed because of the difficulties experienced during the Safewayintegration and the need to be responsive to customer trends in a competitiveenvironment The new approach was started by Marc Bolland (who has moved on to become ChiefExecutive at M&S) and is being continued by Dalton Philips, a former Walmart executivewho was recruited from the Canadian food distributor Loblaw Morrisons culture is therefore becoming more of a Role/Task culture, replacing the Powerculture of the past tutor2u 66. Health warning for MorrisonsThere is a limited amount of evidence in the case study so it is difficult to develop a water-tightcorporate strategy. But isit possible to evaluatesome of the options tutor2u 67. Strategic Options for Morrisonstutor2u 68. The work of Michael Porter: Morrisons strategy needs toreflect its competitive advantage Resource advantage firm specificassets that the competition cannot Morrisons has someeasily acquire such as patents, tradecompetitive advantage frommarks, proprietary knowledge, installedowning elements of its supplycustomer base, reputation, brand chainidentity Morrisons has a competitive Capability advantage skills and advantage from its Trainingcompetencies, innovation, creativity andquality of processes Academy Retail Skills Morrisons has no discernible Cost advantage productivity of competitive advantage on costlabour/assets and buying power for raw and may have a disadvantagematerials on economies of scale Differentiation advantage ability to add Morrisons has competitivevalue by offering (unique) product advantage through its ability tobenefits produce fresh products in-store tutor2u 69. Porter identified three generic strategies against which Morrisons can be evaluatedGeneric What does it mean? What is required?StrategyCostUnit costs are lower than competitorsUp front investment inLeadershipbecause of economies of scale, goodgaining market share Yesproduction processes and efficient followed by running a veryresource allocationtight shipDifferentiation Winning profitable segments of the Finding perceived productmarket. Unit costs may be higher, market characteristics andshare is less important, but customers are uniqueness that add value Maybeprepared to pay a premium for qualityand individualised productsFocus Avoidance of confrontation withFinding markets that largecompetitors (cost leaders andcompanies cannot easilydifferentiators) by developing niche replicate (e.g. super fastpositions with products for otherwisedelivery, personal service,Nounsatisfied customershard-to-imitate products) tutor2u 70. Applying Porters Strategy Matrix to Morrisons indicatesthat a Cost Leadership strategy is appropriate Broad (market-wide)Cost leadership DifferentiationstrategystrategyCompetitive MorrisonsScopeNarrowFocus strategyFocus strategy(market segment)(low cost)(differentiation) Low CostDifferentiated (product uniqueness)Competitive Advantage tutor2u 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 strategyStrategic 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 acquisitionEvaluation 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. The Ansoff Matrix can be used to help makedecisions about products and markets Decisions about what products to sell, and in which markets, provide animportant guide to the direction of growth Ansoff drew up a growth vector matrix that described how a combinationof business activities in existing and new markets, together with existingand 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 newgeographies 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 newmarketstutor2u 73. Ansoff Matrix:Products and Markets Existing Products New ProductsExisting MarketsMarket ProductPenetrationDevelopmentNew Markets Market Diversification Development tutor2u 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 businessassets Advantages Advantages Makes best use of existing resources Can overcome barriers to entry Consistent with the culture and Helps spread the risk (not all eggsmanagement 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 DisadvantagesDisadvantages Often slow particularly if existing Cost price usually too highmarkets are low growth Different cultures may clash Doesnt create barriers to entry Customers may be upset Spare resources (e.g. cash) may be High failure rate (70% ofwasted acquisitions fail to achieve their Can create a cautious approach objective)e.g. build extensions and more stores e.g. buy a supermarket competitortutor2u 75. Ansoffs Matrix can be applied to Morrisons, giving thebusiness a number of different strategic optionsExisting ProductsNew Products Existing Markets MarketProduct Penetration Development Expand organically in the UK by building more stores Develop an online shopping capability Expand in the UK by acquisitionof a competitorMarket Diversification New MarketsDevelopment Expand overseas Develop a broader non-foodTarget new customers through thebusiness development of convenience storestutor2u 76. Which ever option is selected, decisions need to be takenabout whether or not the growth markets are relatedOptionDescriptionHorizontalGrow activities that are competitive with andIntegration complementary to existing activities(Related Markets)Business becomes its own supplier (backward integration)Verticalor distributor (forward integration)IntegrationAdvantages: Secure supply; take more profit from the(Related Markets)value chain; create barriers to entryDisadvantages: More exposed to the same market; doesnot necessarily offer economies of scaleDiversification Spread risk by operating in markets that are not directlycompetitive or complimentary(UnrelatedMarkets)Advantages: May obtain synergies (e.g. using samedistribution channel)Disadvantages: Limited experience in separate marketsincreases risk of things going wrong; cultural differences tutor2u 77. Strategic Option:Morrisons could expandorganically in the UK by buildingmore storestutor2u 78. A Market Penetration Strategy:Organic Growth? This option is about generating more food and grocerysales as well as winning market share from competitors.Morrisons has a stated aim of increasing its shop floorspace by the end of 2011 by 2 Million square feet ofadditional 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. Strategic Option:Morrisons could expand in the UK by the acquisition of a competitortutor2u 80. A Market Penetration Strategy: Growth by Acquisition? This option is about generating immediate and significantgrowth in market share by acquiring an existing UKsupermarket such as Lidl, Aldi or Iceland.Morrisons would need to Conduct appropriate market research Raise the necessary funding in conjunction withshareholders and/or the banks Ensure that the acquisition did not contravene CompetitionCommission regulations Prepare a plan for corporate integration and the generationof synergies tutor2u 81. Strategic Option:Morrisons could develop anonline shopping capability tutor2u 82. A Product Development Strategy:An online shopping capability? This option is about building an online food and grocerybusiness 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 systemscould integrate into the new demand model Build or contract a distribution network of vehicles and staffto deliver food and groceries to homes Adapt their marketing campaign tutor2u 83. Strategic Option:Morrisons could expand overseastutor2u 84. A Market Development Strategy: Superstores abroad? This option involves replicating the Morrisons superstore model inEurope, America or Asia similar to what Tesco has done.Morrisons would need to: Conduct market research to understand the market for supermarkets inselected new territories (being alive to the fact that Tesco has struggledwith its Fresh and Easy brand in America and found it hard to enter theIndian market) Develop relationships or joint ventures with local producers anddistributors in selected countries Ensure that the supply chain can feed demand for Morrisons productsabroadtutor2u 85. Strategic Option: Morrisons could target newcustomers through thedevelopment of convenience storestutor2u 86. A Market Development Strategy:Smaller, convenience stores? This option involves developing smaller stores in towncentres and motorway service areas similar to One Stop orTesco Express.Morrisons would need to Identify key locations to target convenience stores Get planning permission for these stores and constructthem Adapt its Market Street model because it would probablynot be economic or practical to have butchers and bakersetc in convenience stores Modify its marketing campaign tutor2u 87. Strategic Option:Morrisons could develop abroader non food businesstutor2u 88. A Diversification Strategy: Clothes, Electricals and Financial Services? This option involves diversifying to target customers whowant 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 forthe non food product range Modify its marketing campaign Train the workforce in the sale of these new productstutor2u 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 oninvestment) 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 ifthings go badly wrong?) tutor2u 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. 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. 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 Commissiontutor2u 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 businesstutor2u 94. Strategic Option: Superstores abroadSuitability There may be gaps in the market in new territories, especially for Britishproducts 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. 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 andexperiencetutor2u 96. Strategic Option:Clothes, Electricals and Financial ServicesSuitability Extending their retail skills into other areas has worked for othersupermarkets Morrisons has already put a toe in the water in the non food sector It does not fit with their vision statementAcceptability Could be acceptable for directors who have already sanctioned limitedactivity in this arena Low/Medium risk, unknown returnsFeasibility Need for staff training, but they could use the Training Academy for this Need for more store space this is possible Need to build relationships with product supplierstutor2u 97. Here are some things that you could do before the examinations in January and June 2011Primary Research If your school is within travelling distance of Morrisons Head Office in Bradford or oneof their regional distribution centres, you could ask if they will allow you to visit Go shopping at a Morrisons supermarket Have a look at the layout of the store Review the various products sold Talk to Morrisons employees about what it is really like to work there Interview customers who shop at Morrisons and ask them Why they prefer Morrisons to Tesco, J Sainsbury, Asda, Waitrose etc. What they dont like about MorrisonsSecondary Research Keep up to date with market developments on a weekly basis by using your search engine to trawl the web for information and announcements about Morrisons (the case study is written a long time in advance of your examination, so you can expect updated accounts, sales figures and developments at Morrisons between now and June 2011) articles and views about developments in supermarket retailing across the world Web 2.0 information (blogs, twitter, internet discussion forums, customer feedback sites etc.) Rises and falls in the Morrison share price on the London Stock Exchange tutor2u 98. Concluding thoughtThe odds of going to the store for a loafof bread and coming out with only a loafof bread are three billion to one Erma Bombeck tutor2u