Morrison Supermarkets essay – A Review of Competitive Strategy - Essay Prowess

Morrison Supermarkets essay – A Review of Competitive Strategy

Morrison Supermarkets essay – A Review of Competitive Strategy



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.


Sector Profile

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:

  • Significant changes in consumer shopping habits.  Although grocery sales represent a large market at £174Bn, it is growing at its slowest pace in twenty years as consumers cope with stagnant earnings.
  • Increased promotions and discounting across the sector as the large players seek to retain market share;
  • New entrants to the market – particularly Aldi and Lidl – operating on a discount pricing basis to consumers;
  • A surprising resurgence of some grocery stores seen as expensive or upmarket as consumers spend money saved through the use of discount stores on perceived quality items. For example, Marks & Spencer have seen a continual rise in quarterly grocery sales over five years.

(Reuters, 2014)

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:

  • Can Do.  Keeping thing simple and to the point in order to make things happen and achieve real results;
  • Great Shopkeeping.  Setting the standard by paying attention to issues of quality, waste and costs in order to give customers a great deal;
  • One Team.  Working together, building trust and respect to achieve a common goal.
  • Bringing the best out of people.  Constantly seeking improvement and growing their own people.
  • Great selling and service.  A clear and unequivocal customer focus.
  • Fresh Thinking. Always looking for new and better ways of doing thing – a continuous improvement approach.

(Morrison Values, 2014)

From these mission, vision and values propositions, Morrison have been able to articulate a strategy with three clear strategic objectives:

  • Save.
    • Increasing Efficiency
    • Driving savings through indirect procurement
    • In-store productivity
    • Accelerating future opportunities
  • Invest
    • Getting close to customers
    • Investing in the core business proposition
    • Colleague engagement
  • Grow
    • Accelerating Morrison’s presence in new business channels

(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:

  • Threats presented by new entrants to the retail sector and substitute products;
  • The power of buyers, customers and suppliers (in relation to Morrison and others in the sector);
  • Rivalry among businesses in the sector.

(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:

  • Extensive value is added through economies of scale – Morrison’s operations are able to effectively utilise the significant infrastructure and operational support built from the grocery/household operation and their ownership of key aspects of the supply chain (vertical integration).
  • Staffs are a particular strength, built around the founder’s principle of ‘know what you want to do and then make sure you do it well’ (Seth & Randall, 2001: 155). However, there will need to be considerable skills development to support new product lines such as clothing, which are seen by staff as being marginal/ancillary.
  • Whilst delivering clear competitive advantage for Morrison, their vertical integration of the supply chain has not exposed all aspects of the operation to competitive pressure.  This is evidenced in the considerable efficiency savings achieved from a focus on this aspect and the need to introduce a new supply chain software system.
  • Customer service is a particular strength, but detailed corporate-level knowledge of consumer preferences is not. The introduction of the Morrison Card and the subsequent data analysis should address this capability concern.
  • External logistics (home delivery) remains limited and this capability requires national expansion if the full potential benefits of on-line shopping are to be realised.

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:

  • Clear value propositions, with market capitalization ensuring that it retains the independence to avoid any dilution of the stated values;
  • Emphasis on Known Value Item (KVI) pricing, underpinned by own brands;
  • Conservative fiscal approach (such as owning own trading land) providing the ability for a much smaller entity to compete effectively with Tesco, Asda and Sainsbury;
  • Recognition that Morrison’s is a people-focussed business, that sells products – rather than a product/grocery business that needs people;
  • Emphasis on fresh produce, with vertical ownership/integration of the supply chain, supported by skilled and knowledgeable staff in stores.

(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:

  • Cost leadership.  Through the development of pricing strategies which uniquely seek to challenge both the discount stores and the three dominant players in the market (Guardian, 2014). Morrison is aiming to secure market share through a cost leadership strategy (Reuters, 2014).  However, whilst this has the potential to generate the required returns, in the short-term the negative impact on cash flows could undermine Morrison’s foundations of fiscal prudence.
  • Differentiation.  The original strategy for the organisation, using the integrated vertical supply chain, supported by clear, respected values implemented by knowledgeable and engaged staff.  However, the introduction of new product lines that do not sit comfortably within the original remit and value proposition of the company (such as clothing) could erode this unique position in the eyes of consumers (Johnson et al, 2011).
  • Focus.  It could be argued that there was initially an element of a differentiation focus strategy, in that Morrison initially limited operations to major stores in the North of England. The challenge is to maintain the skills and experience that generated competitive advantage and value in the eyes of the consumer as new channels are opened, wherein the store footprint continues to expand nationally and with the opening of convenience stores (Lynch, 2003).

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:

  • Using trusted brands to launch Morrison’s on-line presence nationally, supported by the Morrison Card.
  • Using a trusted/trained colleague base to ensure skills and capabilities for new product lines (clothing) deliver knowledge and support to customers.
  • Using vertical supply chain awareness to rapidly expand customer delivery capabilities.
  • Increase differentiation by using extensive buyer skills/network to source new product lines (children’s clothing) ethically.
  • Using 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.
  • Directly challenge discount stores through price-matching and own-brand/value ranges.
  • Using new channels (home delivery and on-line) to increase consumer access and challenge competitors.
  • Using Morrison Card marketing and incentives to challenge major competitors (Tesco et al.) and protect market position
  • Emphasise differentiation as source of competitive advantage i.e. UK supply sourcing and vertical supply chain integration.
  • Using new channels (on-line and home delivery) to address changing shopping habits.
  • Using the Morrison Card to maintain/develop store/brand loyalty.
  • Using increasing customer awareness of competition to emphasise 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.

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:

  • The mission suggested by this paper for Morrison and the stated vision and values support the evolution of a cost leadership strategy;
  • Morrison should continue with differentiation only where it supports the primary aim of cost leadership and which, in turn, provides a unique marketing/selling point in relation to the competition (Lynch, 2003). Examples include the integrated vertical supply chain, subject to the continued efficiencies and cost control facilitated by the new software system (Morrison Annual Report, 2014).
  • In pursuing a strategy of cost leadership, Morrison will need to maximise its use of the new channels (home delivery and on-line).  This will need to be supported by detailed customer requirements data obtained via the roll-out of the Morrison Card.
  • Differentiation that does not support penetration and development of existing markets should not be pursued, e.g. clothing brands. Focus should be maintained on core market strengths, i.e. fresh grocery produce.

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):

  • Structure.  The expansion into convenience stores UK-wide provides the supporting infrastructure and focus for a cost-leadership strategy. However, given its relative market size in comparison to key competitors, this policy needs to ensure that it follows existing principles of financial prudence.  Morisson will only be able to maintain cost leadership if it continues to avoid significant estate costs (Seth & Randall, 2001);
  • Systems.  Cost-leadership will only be effective if Morrison accelerates the adoption and roll-out of key enabling systems, i.e. the Morrison Card, the supply-chain software updates and a national on-line business offering. This needs to be supported by expanded customer delivery capabilities;
  • Style.  The leadership style of Morrison, built around the values of its founder (collaborative and participative) fits the organisation and proposed strategy well (Seth & Randall, 2001);
  • Staff.  Maintaining people-focussed policies will be a critical success factor for Morrison over the next few years. This provides an acceptable point of differentiation in comparison to competitors and supports the strategy articulated (Henry, 2011);
  • Skills.  Individual skills (such as butchery and fishmongers) are effectively captured to provide a cohesive corporate capability and level of service attractive to consumers;
  • Strategy.  In streamlining staffing structures (Morrison Annual Report, 2014; This Is Money, 2014) the company must not lose key capabilities and the people policies that provide important differentiation in the eyes of consumers;
  • Superordinate Goals. Mission, vision and values fit the strategy and drive corporate objectives and desired behaviours.

(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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Appendix 1


 Initial Objectives 2013/2014Achieved Objectives 2013/2014Planned Objectives 2014/2015
SAVERoll out supply chain forecasting software to depots90% roll-out of forecasting software achievedComplete roll-out of forecasting software
Deliver £100M efficiency savings (over 3 years)£138M efficiency savings achieved – 2.8M store-hours savedContinue to drive efficiency and leverage vertical integration
INVESTLaunch own-brand children’s clothing rangeLaunched Nutmeg children’s clothing range in 214 storesConduct sourcing and supply review
Roll-out and tailor fresh-format to local storesFresh Format roll-out in 117 storesInvest more in value products in Fresh range
Re-launch 10,000 own-brand products10,000 own brand products launchedImprove own-brand offering
GROWLaunch Morrison’s on-line food offering80,000 registered on-line customers in Yorkshire and Warwickshire -100 delivery vans operatingExpand on-line proposition, aiming to reach 50% of all UK households
Open 100 convenience stores, focussed on South-East102 convenience stores opened, 51 in SouthOpen a further 100 convenience stores
  Trial targeted, personal communications to customers, launching Morrisons card

(Source: Morrison Annual Report, 2014: 19-23)

Appendix 2


 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)

Appendix 3


SUPPORT ACTIVITIESFIRM 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 strengthOPERATIONS   Supply chain software roll-out continuesOUTBOUND LOGISTICS On-line distribution still limited and regionalMARKETING & SALES No shop floor subject matter experts for clothing linesSERVICE   Regarded as core value and strengthMARGIN

(Adapted from Porter, 2004: 47-74)

Appendix 4


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 expansionTHREATS 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)

Appendix 5


  Strengths (S)Weaknesses (W)
EXTERNAL FACTORSOpportunities (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 threatsWT 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)

Appendix 6


MARKETSEXISTINGMARKET PENETRATION   Morrisons Card   Expanding own-brand offerings   Price challenge to discount stores   Price challenge to key competitors  NEW PRODUCTS AND SERVICES   Clothing   Ethical sourcing
NEWMARKET 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)