British Grocery Retailing in the Late 1990s: A Different Basis For Competition

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Core Ideas:  The extent to which food retailers are proactive

Supermarkets can be classified in 3 ways regarding this issue:-

 Proactive strategies

Environmental issues are not compromised to increase sales or profits. Rather, green strategies are used as a basis for competition. For example, organic food is sold to differentiate the company on the basis of quality.

 Cautious strategies

Attempts are made to sell some environmentally acceptable products because there is an awareness that green issues may become increasingly important. Therefore policies tend to be "bolted on" as organisations take the view that "we may change if customers want it" e.g. more organic food.

 Opportunistic strategies

Environmental products or foods are only sold because rivals are selling them. The goods that are sold are confined to popular products and do not include perishable premium items; for example, fresh organic meat, fruit and vegetables.

Sainsbury's is perhaps the only major supermarket which can claim to be proactive. It believes that consumers should be aware of the true cost of organic produce which is reflected in the retail price. However, its approach is reactive to the customer (Food Programme 4/8/97 - see Cautious strategies). Tesco's approach is more cautious as organic food is priced equivalently to conventional produce. This approach has been criticised by the Soil Association who believe that consumers should be prepared to pay more for healthy food to avoid the hidden costs (SuperMarketing 1/8/97). Also, it is unclear how long Tesco will accept the lower margins on organic food.

 

Do environmental strategies exist throughout the organisation or do they operate in isolation ?

 

It is difficult for Sainsbury and Tesco to claim to be environmentally proactive through selling organic food. This is because there may environmental problems elsewhere in the organisation.  For example, there is criticism of out of town supermarkets. One analysis suggests that "the social subsidy for an out-of-town store compared with one in a town centre is £25,000 a week; equivalent to more than £1 billion a year nationally (Independent 10/1/95).  This suggests that out of town superstores are less environmentally acceptable. David Sainsbury suggests that it would be too difficult for shoppers to use buses from city centre supermarkets (Guardian 3/11/94).  However, the alternative is to use the car, which causes the problem of the social subsidy mentioned earlier.  Therefore, the supermarkets can be classified depending on the extent of their out of town operations.

It was suggested that grocers could set the standards for food production (Sunday Telegraph 31/3/96).  However, to save money, The Supermarkets could transfer too much of the responsibility for food safety on to the consumer.  For example, through the introduction of "food hygiene weeks", to inform customers of the importance of cooking food thoroughly.  This is helpful as the customer can act as another line of defence in food safety.  However, the danger is that the consumer "appears that they are the only line of defence" (Independent 16/8/97).  The problems throughout the production process remain.  This suggests that initiative such as 'food hygiene weeks' are insufficient.  Food retailers need to encourage less intensive methods of farming instead.

How much importance do supermarkets give to food ? Do food retailers  strategies diverge?  For example, in the proportion of space allocated to  food

The importance of this is derived from business policy.  Peters and Waterman (1982) suggest that focus leads to outperformance. This is relevant to practitioners although it may also have implications for customers and society in general. If supermarkets focus less on food then households may spend a lower proportion of their income on it. This could have health implications.

One example, of divergent strategy, is the difference between Asda and Sainsbury. Asda's aim to devote more floor space to music and video comes at a time when Sainsbury is distancing itself from non-food and focusing on its food offering. This raises an important issue in food policy. The problem is that profit margins on non-food are higher than profit margins on food. Therefore the importance of food, compared to non-food items, may be declining.


A different basis for competition: Food Retailing in the 21st Century


Previous research, in this area, identified a clear shift in the basis of competition among British supermarket chains. The shift was away from price towards meeting customer needs. This involved the major grocers moving to out of town sites, attempting to improve customer service and selling organic food (Ogbonna and Wilkinson 1988). This article discusses the importance of organic food. However, out of town shopping and customer service will be briefly examined. The purpose is to suggest that these two aspects may become less important and that attention should focus more on organic food.

 

The development of out of town supermarkets is problematic in three ways. Firstly, planning approval for new food superstores has slumped. Sainsbury and Tesco have accepted that superstore saturation has effectively arrived so forcing the supermarkets back into the cities (Guardian 3/11/94). Also, out of town supermarkets can lead to increased air pollution and congestion. It is suggested that peripheral superstores impose external costs of £25,000 a week (Lang et al 1995). Finally, home shopping could hinder the present trend towards out of town supermarkets. Sainsbury aims "to be the first to mass market grocery home shopping (Times 30/10/97). However, the potential movement from out of town supermarkets to home shopping is unlikely to be swift. It is unlikely, in the short term, that supermarkets will want to jeopardise their store portfolios by investing in home shopping. To summarise, the difficulties associated with out of town superstores could encourage grocers to look elsewhere for growth.

To improve customer service employees have been encouraged to identify themselves with the organisation. This identification could be described as the formation of a strong culture. Employees become "members" or "colleagues" of the organisation rather than mere "workers". In 1988, it was forecast that supermarkets would need to have a resilient culture to be competitive in the 1990's. This appears accurate since Asda's profits increased while it encouraged greater identification . Also, its success can be attributed to its products being "sold with personality" (Asda Report 1995) showing the importance of service. However, the emphasis given to strong cultures can be questioned. Increasingly, a clinical approach has been applied to selling food; the most basic commodity of all (Independent 1819/96). Strong cultures are part of this clinical approach . The problem is that money spent on strong cultures is investment that is not being made in food quality.

Customer service, based on a strong corporate culture, will be insufficient to maintain competitive advantage in the 21st century. As food quality becomes a priority then there will a different basis for competition. Competitive advantage will increasingly be achieved through providing the customer with high quality food as people aim to avoid food scares. The emergence of this trend, towards higher quality food, is already noticeable. The market for organic food has doubled in the last two years while 75% of all shoppers are sympathetic to the idea of buying organic food.  It is expected that the organic market will double again before 2001 (Independent 25/11/97).

If this trend does emerge then the strategies of supermarkets will have to change. The food market can be described as consisting of three different groups of customers. In 1987, David Sainsbury said that there are customers who are only interested in price; probably 10% of the market. At the other end of the market there are people who are only interested in quality and will pay anything to get it. Finally, you have the majority of people in the middle range. They are interested in both price and quality. Sainsbury's target this group with the slogan "good food costs less". The implication is that Sainsbury's quality is good but not unique. This is because their food does not command a premium price which is the ultimate test of quality (differentiation). Sainsbury's compete on cost but they try and make sure that their food is as good a quality as anybody else's. Sainsbury want comparable quality to competitors such as Tosco and Marks and Spencer (Johnson and Scholes 1993).  However, the problem for Sainsbury, like the other supermarkets, is that the quality conscious group is likely to increase. To offer comparable quality, at a competitive price may not be good enough to maintain competitive advantage in the future.

Arguably, it is possible to have both quality food and low prices. But this analysis is limited. Supermarkets can sell high quality conventional food cheaply. The high market share gives buying economies so the consumer con be offered a lower price. However, the conventional description is a misnomer since current conventional farming techniques have been dominant only for the last 50 years (Blythman 1996). Also if organic food is the only "quality" food then having quality conventional food is a contradiction.

Recent events indicate that the supermarkets are taking steps to improve the quality of their food. For example, Sainsbury sponsored 10 suppliers of conventional produce to attend the Soil Association's national conference on organic food production (Sainsbury Report 1997). Also, Asda has swiftly taken a higher quality stance. In July 1997 they suggested that the demand for organic food did not justify the effort in sourcing it. However, by November it was reintroducing a range of pesticide-free fruit and vegetables.

References

Arnold, Helen, SuperMarketing 1/8/97, Going back to our roots, p.18-20 Cowe, Roger, Guardian 3/11/94, Sainsbury accepts the ... centre ground Lang, T and Raven, H Independent 10/1/95, Cheap food at a huge price Nicholson-Lord, David, Independent 10 /1 /95 .

Peters Tom and Waterman Robert, (1982), In Search of Excellence, Harper Collins, p.293

Standing, Jonathan, Independent 14/9/97, Tesco plans giant stores Streeter, Michael, Independent 16/8/97, Farming "A danger to health"


British Grocery Retailing in The Late 1990's

 

A different basis for competition ?

 

During the 1980's competition shifted away from price, although price remains important, towards meeting customer needs. This involved shifting location to convenient greenfield sites. Moreover, supermarkets were designed with modern layouts. Secondly, attempts were made to transform the culture of the organisation so that customer service could be improved. Finally, the range of goods on offer was extended to include exotic and organic food (Ogbonna and Wilkinson 1990). However, the demise of Shoprite and the change in strategy by Kwik Save suggest that price, as a basis for competition, may be declining in importance. Although it may seem that the supermarkets compete strongly on price, arguably it is only commodity items which are cheap; the known value items (Independent 10/1/95). Modern layouts are important as shopping has been described as Britain's foremost leisure activity (Out of this World leaflet) Strong cultures remain important as products are described as being "sold with personality". (Asda Report 1995). However, with the possible saturation of the supermarket industry, see scenario 2 strong cultures that are helped by rising profits may be more difficult to maintain. If those profits decline the human relations of the organisation may suffer. Therefore, the future of competition could lie in store layouts and the range and quality of the food. Although, the trend towards home shopping may negate the importance of store layouts.

The Excellence Literature, from authors such as Peters and Waterman, has suggested that strong cultures are beneficial. Consequently, strong cultures are important to the supermarkets as they are used to gain competitive advantage (Ogbonna and Wilkinson 1988), One retailer's profits increased while this method was being used (Asda Report 1995). Therefore, other supermarkets may have wanted to introduce a strong culture. As it could lead to better customer service, higher sales and increased profits. However, these developments can be criticised. A clinical approach has been applied to selling food; the most basic commodity of all (Independent 18/9/96). Strong cultures are part of this clinical approach. The trouble is that money spent on strong cultures and customer service is investment that that has not been allocated to food quality.


References


Asda,  Report and Accounts, 1995, p. 10

Lang and Raven, Independent 10/1/95, Cheap Food at a Huge Price 

Ogbonna, E.  and Wilkinson B. , Personnel Review 19,4, Corporate Strategy and Corporate Culture, 1990

 

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