Wm Morrison PLC (Morrison) is the UK’s fourth largest food retailer with over 150 major stores, 130 local convenience style shops and a recently developed on-line home delivery service (Morrison Corporate, 2014). The company has operated for over 100 years and is a food and grocery business that seeks to differentiate from the competition through vertical integration; sourcing and processing the majority of the fresh produce it sells from their own manufacturing facilities (Morrison Annual Report, 2014). The company’s focus on the provenance and the quality of its food items is seen to be a source of competitive advantage, with twelve million customers visiting stores each week and around nine million households making use of Morrison’s on-line services (Morrison Corporate, 2014).
Morrison, along with other major supermarkets, is currently experiencing significant consumer and competitive pressures, experiencing a 6.3% fall in sales in the three months to November 2014 when compared against the same period in 2013 (BBC, 2014a). This has resulted in the company embarking upon a three-year plan of restructuring in an effort to reduce costs by £1Bn and this includes a cut of 2,600 staff (This is Money, 2014). Shares are down by around 40% over the year, although analysts recognise the relative financial stability of the company (with debts cut from £2.6Bn to £2.3Bn) and that the underlying cash-flows remain encouragingly healthy given market conditions (Guardian, 2014).
The current picture of Morrison can therefore be seen as one of a beleaguered supermarket within a tough sector (Guardian, 2014). This paper seeks to conduct a strategic analysis of the company in order to develop potential courses of action in relation to strategy development, along with observations concerning implementation.
Morrison’s aim is to deliver value for money to consumers without being seen to offer any compromise on quality, and from an initial operating base in the North of England, has expanded to include stores in the South-West and South-East of England as well as Scotland (Morrison Corporate, 2014). As the UK’s fourth largest supermarket with an 11% share of the market (behind Tesco, Sainsbury and Asda) and almost £18Bn turnover in 2013/2014 (Reuters, 2014), Morrison is facing the following major business pressures:
Organisational Purpose and Achievement
Morrison aim to meet these challenges through a vision setting out their intent to become the “Food Specialist for Everyone” (Morrison Values, 2014). Although no clear mission statement is articulated within corporate publications (Morrison Corporate, 2014), from a review of the available material this can be stated as being A responsible retailer, providing great service to customers by offering the best value fresh food, prepared by experts. This is underpinned by the following values:
(Morrison Values, 2014)
From these mission, vision and values propositions, Morrison have been able to articulate a strategy with three clear strategic objectives:
(Morrison Annual Report, 2014)
Morrison’s intent, achievements and planned activities summarising the objectives set out against this strategy are at Appendix 1.
The Competitive Environment – factors
To succeed in this business environment, Morrison should constantly review their strategy to maintain competitive advantage, ensuring that the company is seen to add more value than other operators (Lynch, 2003). Strategy is the long-term direction of a company (Johnson, Whittington, & Scholes, 2011), which relates the purpose, aims and resources of the business – in conjunction with the operating environment – aiming to ensure that it remains competitive and effective (Lynch, 2003).
When considering any change in market presence or positioning, strategy requires a clearly articulated vision to outline the reasons for change and what works best. This vision facilitates further strategy development (how to change and how to deliver measurable business improvements), supporting a critical review of the resources required (Fombrun, 1992).
Morrison requires an effective strategy that is able to maintain and sustain its competitive advantage whilst also giving them the ability to respond to change (Henry, 2011). This aspect is critical if Morrison is to endure in this extremely competitive sector (Campbell et al., 1999), but the focus on strategy formulation must not become too constraining as Morrison need to retain the flexibility to seize upon emerging opportunities as soon as they arise (Bennett, 1996). Constant revisions to corporate strategy can also create uncertainty and inefficiency as staff adapt to the new direction being set (Hendry et al., 1993). Therefore, Morrison must carefully consider corporate culture and the associated values as a part of any strategy review (Pettigrew et al., 2006).
Analysis of the external business environment
A critical analysis of the external business environment facing Morrison is required in order to understand the source of their competitive advantage. An appreciation of this essential context will allow Morrison to shape organisational structures, competences and product lines to meet customer requirements and exploit emerging market opportunities – this also supports an appreciation of the relative strengths of competitors (Campbell et al., 1999).
Porter (1980) provides a framework to consider Morrison’s effectiveness and positioning within this environment. A review of key market forces will assist in determining the level of competition faced by Morrison in this sector, and understanding these factors supports the generation of effective strategy (Porter, 1980; Johnson et al., 2011). These forces are:
(Clarke-Hill & Glaister, 1995).
This approach provides a structure that permits Morrison to take a business-wide view, allowing informed decisions to evolve in relation to profitability and continued operation within the sector. Appendix 2 applies Porter’s five forces framework to Morrison’s operation.
The key findings that emerge from a consideration of these factors are:
Threat from new entrants
Whilst being seen as a trusted supplier of quality products, Morrison does not possess a dominant market share when compared to the big three operators – for example, Tesco’s two main food brands each achieve sales of over £1Bn each year (Business Case Studies – Tesco, 2014). This means that Morrison can find itself squeezed between the significant market presence of Asda, Sainsbury and Tesco and the emerging discounters such as Aldi and Lidl (BBC, 2014a).
Morrison’s established market presence is significantly threatened at this time. The considerable economic pressures being faced by consumers means that they are now prepared to make significant use of discount stores previously seen as marginal due to concerns over product range, sourcing, quality, the store experience and service levels (BBC, 2014b). Consumer purchasing habits have evolved considerably with more regular, targeted shopping activity instead of less frequent major purchasing events and the use of the internet for both pricing research and purchases (Bromley and Thomas, 1993). Therefore, as well as facing considerable competitive pressures from the major market players, Morrison’s competitive advantage and market differentiation has been significantly eroded (Business Case Studies – Tesco, 2014).
Bargaining power of buyers
This change in shopping habits and the range of consumer choice in relation to how and where they shop has significantly increased competitive tension in the market (Reuters, 2014). Brand and store loyalty is easily eroded and consumers no longer feel that discount stores are offering services or quality that are demonstrably or unacceptably poorer when compared to Morrison (BBC, 2014a).
Changing shopping habits have increased the bargaining power of consumers and people now make numerous visits to a range of stores aiming to gain maximum value from the competition between suppliers (Economist, 2013). With increased consumer flexibility and access to competitors, Morrison must change its value proposition and the marketing approach that supports it.
Threat of substitute products
Consumers are now willing to purchase previously unknown brands (Economist, 2013) with Morrison’s branded items not being seen to offer any particular premium over the substitute products found within discount stores (Marketing Week, 2012). With consumers focussed on price advantage rather than service and quality, they are less likely to commit to buying other items on an opportunity basis when grocery shopping.
Bargaining power of suppliers
Morrison’s significant market presence and own supply base has provided some leverage over external suppliers (Morrison Annual Report, 2014). However, consumer concerns over issues such as ethical sourcing and the decreasing importance of label and brand indicates that a more collaborative, partnership approach is required (Guardian, 2014).
Analysis of the Internal Business Environment
Any evaluation of the external environment Morrison faces must also recognise the internal factors that shape the company’s value proposition. The aim is to ensure that Morrison possesses the essential competences and resources required to meet the challenges identified (McGoldrick, 1994).
An analysis of the value (those activities involved in the delivery of products and services) would assist Morrison to review how internal competences and resources are deployed and ultimately identify particular strengths and possible weaknesses (Henry, 2011). Porter (2004) developed a model to support such analysis and this is applied to Morrison’s retail operations at Appendix 3.
From this review of Morrison’s value chain, the following observations can be made:
Whilst the majority of these aspects appear to be addressed in the future objectives outlined in Appendix 1, it is not clear if they are suitably prioritised and what the implications may be for Morrison’s stated vision and values.
Developing potential course of action
In considering the internal (five forces framework) and external (value chain) analyses, a consideration as to the strengths, weaknesses, opportunities and threats (SWOT) being faced by Morrison can be compiled. This provides an overview of the strategic position of Morrison in the sector, giving a baseline against which evolving strategic options can be considered and potential courses of action assessed (Johnson et al., 2011). Strengths and weaknesses are primarily focussed upon internal resource issues (i.e. those generating value and competitive advantage); whilst opportunities and threats are derived from an appreciation of the external operating environment (Lynch, 2003).
Appendix 4 shows the SWOT analysis for Morrison, applying the data reviewed in the Five Forces Framework (Appendix 2) and Value Chain Analysis, (Appendix 3). Whilst providing a useful reference point to review emergent strategies and the choices that underpin them, there are limitations associated with any SWOT analysis. They can be very general and possess little underlying rigour, allowing existing perceptions and assumptions to shape the observation(s) made (Johnson et al., 2005; Whittington, 1993).
It is therefore essential to combine the information generated by the SWOT analysis with internal and external factors in an attempt to generate balanced potential courses of action and associated options. Appendix 5 provides a matrix for Morrison in terms of retail operations, suggesting actions which reflect the current market conditions (Clarke-Hill & Glaister, 1995). However, any analyses made will need to be supported by quantitative data and a range of qualitative views and opinions should also be obtained (Pettigrew et al, 2006).
A distillation of all the issues raised within Appendices 1 to 5 would indicate that Morrison’s critical success factors (that underpin perceived competitive advantage) are:
(Seth & Randall, 2001)
Whilst Morrison’s strategic choices and stated direction appear very clear (Morrison Annual
Report, 2014), in terms of the generic strategies articulated by Porter (2004) there is a clear blurring of focus raising the following concerns:
It is therefore appropriate to consider the most appropriate generic strategy for Morrison to pursue and then consider the implications for the stated objectives and underlying corporate values (Morrison Values, 2014). Appendix 6 highlights the following potential courses of action that would shape this process:
Appendix 6 seeks to bring these aspects together in order to provide a considered view as to the most prudent strategy direction for Morrison to pursue (Ansoff, 1988). This would indicate that market penetration and development are likely to provide the foundations for Morrison’s continued success and enduring market share. This, in turn, supports a strategy of cost leadership, where diversification should only be pursued if it supports this primary aim (such as the integrated supply chain) (Seth & Randall, 2001). Diversification into non-core product lines such as children’s clothing appears to detract from this main effort, diluting resources and focus whilst also potentially eroding competitive advantage (Henry, 2011).
The analyses conducted in this paper and the subsequent conclusions would seem to indicate that there are few major implementation concerns for what may be a minor change in strategy (De Wit & Meyer, 1998: 19). The key recommendations are:
Whilst these may appear to be relatively straightforward adaptations to the current strategy articulated by Morrison (Morrison Annual Report, 2014), it is prudent to assess the degree in which the various elements of the company work to support it (Johnson et al, 2011). The application of McKinsey’s 7-S framework provides a suitable model (Waterman, Peters & Phillips, 1980):
(Waterman et al, 1980)
From this consideration, it can be argued that a cost-leadership strategy is appropriate, but only if the key enablers (software, Morrison Card, online presence and delivery capabilities) are put in place at the earliest possible opportunity. Any significant delays would make it difficult for such a strategy to endure as there would be no scope to pursue the required efficiency gains or to recover the initial costs associated with such an approach. Without these enablers, a cost-leadership strategy could damage the current financial operating model and slow expansion plans. In such a scenario, it would be prudent for Morrison to revert to a primary strategy of differentiation (service, supply chain and values), focussed on consolidating its current footprint rather than on a policy of competitive expansion.
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WM MORRISON PLC – OBJECTIVES OUTLINED AGAINST STATED STRATEGY
|Initial Objectives 2013/2014||Achieved Objectives 2013/2014||Planned Objectives 2014/2015|
|SAVE||Roll out supply chain forecasting software to depots||90% roll-out of forecasting software achieved||Complete roll-out of forecasting software|
|Deliver £100M efficiency savings (over 3 years)||£138M efficiency savings achieved – 2.8M store-hours saved||Continue to drive efficiency and leverage vertical integration|
|INVEST||Launch own-brand children’s clothing range||Launched Nutmeg children’s clothing range in 214 stores||Conduct sourcing and supply review|
|Roll-out and tailor fresh-format to local stores||Fresh Format roll-out in 117 stores||Invest more in value products in Fresh range|
|Re-launch 10,000 own-brand products||10,000 own brand products launched||Improve own-brand offering|
|GROW||Launch Morrison’s on-line food offering||80,000 registered on-line customers in Yorkshire and Warwickshire -100 delivery vans operating||Expand on-line proposition, aiming to reach 50% of all UK households|
|Open 100 convenience stores, focussed on South-East||102 convenience stores opened, 51 in South||Open a further 100 convenience stores|
|Trial targeted, personal communications to customers, launching Morrisons card|
(Source: Morrison Annual Report, 2014: 19-23)
PORTERS FIVE FORCES ANALYSIS APPLIED TO WM MORRISON PLC
|Increasing consumer sensitivity to price, durability and utility over fashion, brand and product range||ê||Threat of substitute products|
|Bargaining power of suppliers||INTENSITY OF RIVALRY IN THE INDUSTRY||Bargaining power of buyers|
|Decreasing label/brand loyalty from consumers Increasing consumer demand for ethical sourcing||Undifferentiated products – less brand/label sensitivity Increasing consumer access to competitors|
|Internet access to discount suppliers and price comparison sites Increasing attractiveness of discount stores such as ALDI and LIDL||é||Threats from new entrants|
(Adapted from Campbell et al., 1999: 116)
VALUE CHAIN ANALYSIS FOR WM MORRISON PLC (RETAIL)
|SUPPORT ACTIVITIES||FIRM INFRASTRUCTURE Solid infrastructure able to support core retail operations||MARGIN|
|HUMAN RESOURCE MANAGEMENT Good personnel development and performance metrics in place, but no specific focus on potential challenge or diversification – seen as ancillary activity, as profitability (and therefore career progression) derived from core Morrison (grocery/household) product lines|
|TECHNOLOGY DEVELOPMENT Excellent technology application in terms of stock movement, consumption control, asset utilisation. More limited appreciation of consumer habits (Morrison Card only recently launched).|
|PROCUREMENT Outstanding procurement function, but focussed on existing product lines and brands. Diversification (such as new children’s clothing range) may present issues||è|
|INBOUND LOGISTICS Vertical integration a particular strength||OPERATIONS Supply chain software roll-out continues||OUTBOUND LOGISTICS On-line distribution still limited and regional||MARKETING & SALES No shop floor subject matter experts for clothing lines||SERVICE Regarded as core value and strength||MARGIN|
(Adapted from Porter, 2004: 47-74)
SWOT ANALYSIS FOR WM MORRISON PLC (RETAIL OPERATIONS)
|STRENGTHS Respected Brand, built on reputation as local grocer. Vertical integration of the supply chain Capabilities and skills focussed on preparation and delivery of fresh produce. Accessibility – number of stores.||WEAKNESSES Limited on-line presence/offering in comparison to competitors Limited/regional distribution network for on-line/delivery orders.|
|OPPORTUNITIES Increasing consumer demand for ethically sourced products. New markets/segments (e.g. online, convenience stores). Strategic positioning/footprint –existing stores. Skilled staff and existing development/training programmes. Supply chain awareness through potential vertical integration expansion||THREATS Changing shopping habits – less likely to buy non-grocery items (such as children’s clothing range) “in passing”. Increasing customer access to competitors. Increasing consumer sensitivity to price over service and quality. Decreasing brand/store loyalty Expansion of discount stores and increasing consumer acceptance/awareness|
(Adapted from Lynch, 2003: 465)
TOWS MATRIX FOR WM MORRISON PLC (RETAIL OPERATIONS)
|Strengths (S)||Weaknesses (W)|
|EXTERNAL FACTORS||Opportunities (O)||SO Strategic Options Use trusted brand to launch Morrison’s on-line presence nationally supported by Morrison Card. Use trusted/trained colleague base to ensure skills and capabilities for new product lines (clothing) deliver knowledge and support to customers. Use vertical supply chain awareness to rapidly expand customer delivery capabilities. Using strengths to take advantage of opportunities||WO Strategic Options Increase differentiation by using extensive buyer skills/network to source new product lines (children’s clothing) ethically. Use new channels (on-line and home delivery) to introduce and trial new product lines. Involve skilled staff in the development, evaluation and roll-out of expanded own-brand offerings and new product lines. Taking advantage of opportunities to overcome weaknesses|
|Threats (T)||ST Strategic Options Directly challenge discount stores through price-matching and own-brand/value ranges. Use new channels (home delivery and on-line) to increase consumer access and challenge competitors. Use Morrison Card marketing and incentives to challenge major competitors (Tesco et al) and protect market position Emphasis differentiation as source of competitive advantage i.e. UK supply sourcing and vertical supply chain integration. Using strengths to avoid threats||WT Strategic Options Use new channels (on-line and home delivery) to address changing shopping habits. Use Morrison Card to maintain/develop store/brand loyalty. Use increasing customer awareness of competition to emphasis value offered by Morrison and create direct value comparisons. Carefully review and re-consider new product ranges – focus on core business and associated value propositions. Minimise weaknesses and avoid threats|
(Adapted from Johnson et al., 2011: 108)
WM MORRISON PLC – CORPORATE STRATEGY DIRECTIONS
|MARKETS||EXISTING||MARKET PENETRATION Morrisons Card Expanding own-brand offerings Price challenge to discount stores Price challenge to key competitors||NEW PRODUCTS AND SERVICES Clothing Ethical sourcing|
|NEW||MARKET DEVELOPMENT Online presence and home delivery National expansion of convenience stores Vertical, integrated supply chain development Prudent fiscal approach to expansion||CONGLOMERATE DIVERSIFICATION Nil|
(Adapted from Ansoff, 1988: 62)