1. Executive Summary
3.1 Porter’s 5 forces
3.2 Swot Analysis
3.3 PEST Analysis
4. Business Strategy & Planning
5. Performance based on Ratios
1. Executive Summary
This study will present some key factors that should be considered when analysing a company’s Annual Report. Obtaining a company’s Annual Report is not a hard task, especially if it is listed on a stock exchange and can be downloaded from the Internet. However, clarifying the figures correctly, which often come in long volumes, is essential to better understand, analyse and interpret these reports, the company and the market.
The company hereby analysed is Wm Morrison Supermarkets PLC, a well-known retail supermarket chain in the UK, the Netherlands and the Isle of Man, with over 420 stores. Some other products provided by the company are home & leisure items, groceries, beers, spirits and wine, besides its vast variety of own product brands. The labels are known as: The Best; Eat Smart; Bettabuy; Organic; Freefrom; At Home; First Home and Complexions.
According to Kline (2007), the retail segment is in general a sensitive sector affected during economic recessions, and grocery stores belong to this segment. On the other hand, big retail stores like Morrison Supermarket are less susceptible to crises as customers keep buying essential products, therefore sales rates remain steady. When comparing to other retail operators, furniture stores for instance, Kline (2007) deduces that grocery store’s profits are slimmer but more trustworthy than the other retailers, which an interesting attribute for the ones looking for investments over recession times.
The ratios for grocery stores should also not be compared to other retailers and industries. They have a few peculiar facts, like being affected by different market conditions; therefore if the ratios are not analyzed separately, the conclusions may lead to some mistakes. This study aims to analyse the main indicators with a view to obtaining a correct evaluation of the current financial position of Morrison Supermarkets businesses.
In order to better analyse Morrison’s current position in the market, an external and internal audit will be performed.
3.1 – Applying Porter’s 5 forces to the company:
- Morrison’s Level of Competition is very high; it is the fourth largest supermarket chain in the UK, behind Tesco, Asda and Sainsbury's. Among its competitors, Asda is the one that represents the biggest threat providing constantly price cuts to its clients. However, Morrison’s value for money strategy guarantees an important share of the market. The other two ones are not very interested in radical price cuts, even though they are especially competitive regarding sales and prices.
- Threat of Substitutes is also high for Morrison. As the peak of the financial crisis is being left behind, the British consumers are now slowly returning to their ordinary consuming habits. This represents a risk for Morrison, which did pretty well during the recession out of its own labelled brands in that consumers may return to the supermarkets where they used to buy before the crisis. It is very difficult to keep customers loyal to only one supermarket brand, the choices are vast and the shop closer to their home will win (McGoldrick, 1998). Morrison still does not have a loyalty card system, which leaves them behind the competition and becomes another important threat.
- It is not easy to break into the UK retail market of groceries shops. The barriers are enormous and the market is dominated by Tesco, Asda, Sainsbury’s and Morrison. These chains dominate the market and have grown over the years by acquiring and merging with local existing shops. As a result, the Threat of New Entrants is very low for Morrison.
- It is known that the Bargaining Power of Suppliers within the grocery industry is very risky due to an abusive environment, where the bigger chains offer a poor level of bargaining conditions to its suppliers. The higher the number of suppliers, the greater the power of bargain of the supermarkets, pressurizing them to move to the competitor if they don’t get the better deal. However at Morrison, the culture of having a good and long lasting relationship with the suppliers is very much respected, therefore the customers can benefit from any cut of costs stemmed from the relationship between the company and its suppliers. The size of its operations also benefits from the economy of scale advantages, giving them a high bargain power with its suppliers.
illustration not visible in this excerpt
The Bargaining Power of Buyers is very high in the UK grocery shops market, where buyers can replace one supermarket with another easily and cost less. Consequently, Morrison has not only to keep its consumer base satisfied to have them shopping with the company but also to find strategies to capture new ones.
3.2 –SWOT Analysis:
- The company has expanded considerably during the last years and has now over 420 stores across the UK. The company aims to have stores all over the country within a 15 minute drive from every British home.
- Morrison has developed a simple operation. Its network of manufacturers and distributors is a vertically integrated supply chain. This management model reduces time and costs for the company.
- The company has strongly trained and developed its employees at all levels. Therefore, when there is a job opening, it is possible to recruit internally, promoting a good environment within the business.
- Nowadays, consumers search for supermarkets where they can buy everything they need. The competition has heavily invested on non-food products, like clothes and electrical appliances. Morrison weakness is that it still has not expanded its operations with a view to serving this market, which is leading to some customer losses. Although the space and storage costs required by non-food products are huge, Morrison should start investing in this strategy.
- The UK market is still an opportunity for Morrison to increase its number of stores. There are still potential clients that do not go to Morrison because it is far from their home. As a result, the company’s target is to have one a branch within a 15 minute drive-time of every house in the UK (Morrison, 2010).
- Online sales are another important opportunity for the company. Their website is purely informative whereas its competitors, like Tesco, are investing aggressively in this sales tool.
- Morrison is also behind its competitor concerning its shops updating. Illustrative of this is Sainsbury’s, which has successfully implemented self-service checkout counters, hence reducing its costs. The company has to keep up with these new technologies as well.
- Asda has become an important competitor since its acquisition by Wal-Mart, the largest food retail company in the world. The concept of value for money is even more important now, and Morrison is well positioned. However, in order to avoid losing this position, it is important to follow the threat of competition closely.
- The change of the company’s CEO at the beginning of 2010 has affected its share price (The Guardian, 2010). The new CEO has still to point out his leadership strategy.
- Raw material prices have been increasing globally over the recent months, making food prices unsteady. Morrison needs to be alert and flexible to respond to this threatening environment accordantly.