What it is a Strategic Group in Marketing?

1.0 Executive Summary:

A strategic group is a concept used in strategic management that groups companies within an industry that have similar business models or similar combinations of strategies. Strategic groups have to be seen as “organizations within an industry with similar strategic characteristics, following similar strategies or competing on similar bases.” However every supermarket has its own implemented strategy but one may has to mention. Research conducted by the IGD shows that for the past ten years, in general UK grocery market has been increasing stably. The total grocery market has grown from £93.3bn in 1998 to £146.3bn in 2008. There are 92,796 grocery stores in the UK, which can be split into four sectors: Convenience store; Traditional retail; Hypermarket, supermarkets & superstore; and Online channel. There can be better retailer business within as the Tesco runs over eight hundred stores around Europe as Tesco has been providing such range of business services that is for the business in distribution process of warehousing as well as advertising and the integration of financial service as possible as well as the transportation and interaction of such services.

The reasons for the market leader success of these retailing companies in United Kingdom integrates the importance of its market scale and structure as there will have potential to process good and useful value for the customers through acquiring such global procurement approaches like for example, there will be involvement of development for corporate innovative relationships among such shareholders and suppliers and in a way, these companies have maintained its growth and stability despite uncontrollable situations within their environment and has the ability to reduce product costs in satisfying loyal customers and outcomes a better retail area that ranges in low prices for the services being offered and that these companies have keep in them better vision in lieu to their strategic processes in the market. The presence of growth through building new stores is no longer viable now that superstore saturation appears to have been reached and that growth should approach through attraction and retention of customers, increasing share of a customer’s total expenditure or through moving into related, but relevant, products and services.

2.0 Strategic planning:

The retail market consists of several strategic groups. One strategic group in the industry consists of TESCO, ASDA, SAINSBURRY, and MORRISON.

A strategic group is a concept used in strategic management that groups companies within an industry that have similar business models or similar combinations of strategies. For example, the restaurant industry can be divided into several strategic groups including fast-food and fine-dining based on variables such as preparation time, pricing, and presentation. The number of groups within an industry and their composition depends on the dimensions used to define the groups. Strategic management professors and consultants often make use of a two dimensional grid to position firms along an industry’s two most important dimensions in order to distinguish direct rivals (those with similar strategies or business models) from indirect rivals. Strategy is the direction and scope of an organization over the long term which achieves advantages for the organization while business model refers to how the firm will generate revenues or make money.

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3.0 Strategic Group Analysis:

Strategic groups have to be seen as “organizations within an industry with similar strategic characteristics, following similar strategies or competing on similar bases.” When identifying such groups one may refer to a broad range of different characteristics e.g. extent of product diversity, company sizes, perceived product quality etc.

The number of groups and different companies which form the single strategic groups depend on the characteristics, one refers to. As you may see the main competitors in the UK food retailing industry are Asda, Tesco, Morrisons (including Safeway) and Sainsbury’s, which are either in the same strategic group or the one next to it.

However every supermarket has its own implemented strategy but one may has to mention that each one is mostly (low)-priced based and that only Sainsbury’s strategy is customer focused relying on quality and offering outstanding value.

However, Asda is with the lowest price offers the cheapest one of the three companies but closely followed by Tesco and then Morrisons.

In fact, most of all big supermarkets lost their strategic position and as well their SCA. Therefore, one may has to point out that their strategies are easy to imitate and it also makes it much easier for ‘rivals’ to win the competition battle.

Moreover, whenever a company wants to expand its position and therefore needs a new strategy, it needs to bear in mind the different strategic groups. The mixing up of these strategic groups could have tremendous effects on each individual success.

Even though several companies in the same industry may share common characteristics, each organisation itself may be shaped by more or less specific and original characteristics. So how can one figure out the “right” set of characteristics as the basis for an analysis?

In addition, the evaluation of several characteristics may be quite subjective in pointing out the ‘leader’ of the special category.

This specific analysis has been applied as “the conceptualization of strategic groups can make the process of competitor analysis more manageable. Within the food retailing industry there are numerous competitors. Therefore, it does not seem to be feasible to analyze all of them individually.

Furthermore, “a knowledge of the strategic group structure can be extremely useful”, when reviewing a company’s strategy, according to the knowledge gained on the current and future profitability within the different strategic groups.

4.0 Short literature review on UK grocery market:

Research conducted by the IGD shows that for the past ten years, in general UK grocery market has been increasing stably. The total grocery market has grown from £93.3bn in 1998 to £146.3bn in 2008. However, in the recent years, UK grocery market has faced more and more uncertainties, such as the financial crisis, high unemployment, tight household budgets, and so on. But UK grocery market could not completely get rid of the impacts of those uncertainties, it still has acquired reasonable growth rate.

There are 92,796 grocery stores in the UK, which can be split into four sectors: Convenience store; Traditional retail; Hypermarket, supermarkets & superstore; and Online channel.

Hypermarket, supermarkets & superstore is the largest sector among all the 4 sectors, and in 2008 accounted for 73% of the total grocery sales. Convenience retail is the second largest sector, and in 2008 accounted for around 21% of the total grocery sales. Traditional retail has faced fierce competition from the above two sectors, and its market share has declined to less than 5%. Online channel also only has a very small market share in the grocery market.

The 4 biggest chains in the UK are Tesco, ASDA, Sainsbury, and Morrison’s, and they accounts for 67.9% of the grocery market. Tesco has 28% market share, followed by ASDA (15.2%), Sainsbury’s (14.3%) and Morrison’s (10.4%). After the Cooperative purchased Somerfield, this group now has 8% market share (Cooperative at 6.3% and Somerfield at 2.7%). Other UK supermarket chains include Waitrose, M&S, Iceland, and so on.

The UK also has one of the most advanced private label markets in the world. For the grocery market, private label has already occupied around 55% market share in 2008 based on Nielsen’s research.

Almost all supermarket chains in the UK have its private labels. And their private labels are no longer only the copies of branded products, but an important strategic tool to diversify product ranges and develop new revenue streams.

5.0 Market players of UK grocery market:

5.1 Tesco:

Tesco is a UK based international grocery and general merchandising retail chain. It was founded in 1919 in London. It is the largest British retailer and the 3rd largest global retailer based on revenue. Tesco group sales were ₤59.4 billion ($95.1 billion) in 2008 which was an 11.1% increase on the previous year. They employ 287,000 people in the UK.

Tesco has been a market leader in the UK grocery market for the last 25 years. One important reason for Tesco’s success is that it has been leading the industry change. It’s Tesco which first introduced the club card; it’s also Tesco which first started online-selling; it’s still Tesco who first tried non-food stores.

Tesco has 2282 stores in 6 different store formats which are Extra stores, Superstores, Metro stores, Express stores, Home Plus stores, and One-stop stores. This multi-formats store strategy has also greatly contributed to Tesco today’s success, as they let customers assess Tesco as easy and convenient as possible.

Around 900 Tesco stores are Express stores. Over 500 One-stop stores and nearly 450 Superstores make them the 2nd and the 3rd largest store formats for Tesco. Tesco also has around 180 Extra stores and Metro stores. Home Plus store is Tesco newest store format. The difference between Home Plus store and other store formats is that there is no food sold in Home Plus stores. Tesco has opened 10 Home Plus store on a trial basis.

By positioning itself to lower prices and to keep a competitive agenda, Tesco successfully markets itself to all segments of the UK population, although its main customers are still middle income.

5.2 Asda:

ASDA is the 2nd largest supermarket chain in UK with 15.2% market share. ASDA Stores Limited was founded as Associated Dairies & Farm Stores Limited in 1949 in Leeds, and became a subsidiary of the American retail giant Wal-Mart which is the world’s largest retailer in 1999. Although ASDA is Wal-Mart’s largest non-U.S. subsidiary, and accounting for almost half of the company’s international sales, ASDA still has retained a very British feel in-store and a distinct identity separate from its parent company.

It has its largest presence in the North of England, has expanded South due to acquisitions and new store development. Unlike other leading chains, ASDA doesn’t have a convenience store format. Instead, it concentrates on large format stores and has developed successful hyper-markets across the country. It currently operates around 343 stores. Also, it doesn’t have club card as its competitors usually do.

ASDA targets the lower-end of the mass market. And as its strap-line “Everyday low price” said, it largely competes on price. The low price strategy with the support of Wal-Mart’s global buying power contributes a lot to ASDA’s success in the UK.

5.3 Sainsbury’s:

Sainsbury’s is the No. 3 supermarket chain in the UK with 14.30% market share. It was founded in 1869 by John James Sainsbury and his wife Mary Ann (née Staples), in London, England. The Sainsbury family still owns around 15% shares of the company. It was once the largest UK retailer until 1990’s and pioneered the self-service retailing and development of private label goods in the UK. It has strong market position in London and the South East.

In 2007, Sainsbury’s identified five main areas for growth. These were: “great food at great prices”, increasing number of complimentary food ranges, reaching more customers through additional channels, e.g. home delivery, growing supermarket space and active property management. These initiatives have helped Sainsbury’s keep its number three position.

Sainsbury’s only has two store formats – traditional supermarkets and convenience stores. In 2009, among its 792 stores, 502 of them are supermarkets and 290 of them are convenience stores.

Sainsbury’s main strap-line is “Try something new today”, and since 2000 Jamie Oliver has been the successful face of Sainsbury’s. It is a member of the Nectar loyalty card in conjunction with other retailers such as Debenhams and BP.

5.4 Morrison’s:

Morrison’s is the fourth largest supermarket chain in the UK with 10.4% market share. It is originally founded by William Morrison in 1899, and started out as an egg and butter stall in Rawson Market, Bradford, England. The Morrison family currently still owns around 15.5% shares of the company.

Until 2004, Morrison’s store locations were primarily focused in the north of England, but with the takeover of Safeway in that year, the company now has a total of 417 superstores across the UK.

Although the company claims that its strategy more focuses on offering unbeatable customer service and a pleasant shopping environment, however, because it targets at the mid-lower end customers, it still generally competes on price, special offers and multi-save promotions.

Another point which makes Morrison’s stand out is its “market street” feature. To better utilize this point and differentiate itself from the fierce competition, now it concentrates its message on being a food specialist for everyone, and its current strap-line is “Fresh Choice for you”.

6.0 Reasons for classified as part of the same strategic group:

The companies who are utilizing the same business for their business and adapt the more about same kind of strategy to success in the market is mainly laying in the same strategic group. In the UK’s grocery market mainly the market players try to adapt the same kind of strategy because the products quality and the differentiation of product is almost the same kind. Generally, it can be said that Asda, Tesco, Morrisons’ as well as Sainsbury are being classified as part of the same strategic group. The UK’s grocery four market players implies to the UK retailing business and industry. There for some reason, those companies may incorporate the same strategy planning processes and motivation to stay focus and up-close within the market and they are in one cycle domain for the retailing trade ways in the UK. Thus, the companies have the opportunity to be in the same strategic position for keeping intact into the macro-environment of the retail business in the UK. Probably, sharing similar marketing strategies, segmentation, industry analysis and its business environment for such external and internal forces within its marketing assumptions as well as involving similar indicators in dealing to such PEST and SWOT analysis for a well emphasized business organization and structure. The four market player companies imply a supermarket spirit unto the UK grocery market areas. There was Tesco’s aggression as matched by poor performance from Sainsbury’s as there aims to analyze Morrisons strategy in macro environment using strategic models as applied in analyzing profitability in UK market and that Morrisons strategy is for developing its for analysis of competitive instances.

Furthermore, a report shows, there states that food retailing in UK is one of the most dynamic and innovative retail sectors, with steady sales forecasted at 17 percent within the year 2006 and 2010 and that sales by these food retailers were comprised of £92.3bn during 2006 as strategies like for instance, Asda and Tesco will incorporate the value of customer loyalty and be distributed throughout UK as there allows access to economies of scale as acquired by grocery company with policies that are designed in enhancing productivity from work environment like the share schemas for the employees. There involves sequence loop as products are developed from views of customers in determination of retail success as attributed to UK global growth and that customers can look forward for stable prices and enjoy job chances and tough with fierce competition and continued service for the customers in achieving better availability.

7.0 Macro Environments of four market players of UK grocery market:

There can be better retailer business within as the Tesco runs over eight hundred stores around Europe as Tesco has been providing such range of business services that is for the business in distribution process of warehousing as well as advertising and the integration of financial service as possible as well as the transportation and interaction of such services. Aside, there indicates that Tesco had overtook the ways of Sainsbury in terms of becoming Britain’s largest food retailer during the year 1995 and Tesco continues in leading over. During the year 1999, Tesco increase a step ahead over others and Tesco has become successful profitable retailer in the UK and as of the present, Tesco is serious in a way of achieving globally in terms of further business expansion as there has to be enough identification of Tesco’s economic as well as aims within the market. Tesco, being the largest British retailer having global supermarket chain as Tesco being UK’s successful retailing firm in the supermarket industry is able to reduce its unit cost of production as the scale of operation increases. It is able to use its commercial or market power to bid down prices to obtain preferential rates thus enjoying large discounts for manufactured goods, vegetables, raw materials and transport via bulk buying and allowed Tesco to enjoy productive efficiency thus allowing cost advantage.

There was a greater cost advantage therefore means total cost of production is minimized hence securing and maintaining higher profit margins. Then, in Tesco, there identifies such factors effecting the structure of business in terms of exposing Tesco’s harmfulness as well as helpfulness to the business as there involves planning for the macro-environment role in effective functioning. There involves the distribution process to shareholders as dividends and with Tesco’s growth reflects stability in supermarket chain in UK. There can be use of Mintzbergs movement strategy as there stating of deliberate strategy as a realized option of the strategy and has emerged from the changes upon certain review of marketing environment. Tesco uses four part strategy such as the main UK business, the retail service as well as the non food and global strategy as Tesco have grown in profitability due to the strategy used as there saw an increase of 12.7 percent in group sales as well as retail profits of £40m also, the non food has a 4 percent market share and growth in sales comprising of 25.6 percent and if being closely examined, Tesco’s success strategy have the need to emphasize the value of business mechanisms along with its desirable market cycle for a sound business milieu concerning UK’s retail schemes in better pursuit of growing market share. Furthermore, according to research by Data monitor during the year 2002, it mentioned that the British grocery shoppers spent £395 million online that was more than half that can be due to such amount of data as precise to the competitors of the retail business.

Aside, for the PEST analysis, such companies as Sainsbury, Morrison’s’, Tesco and ASDA for its political matter, the UK government are in control of the supermarket prices and provide sanctions for advertisements by means of print ads and media tools such as T.V and radio as UK in those companies market, the operation process tries to explore the marketing activities in contributing retail success for better customer needs. There involves the coordinating function as a means to achieve certain market objectives as well as using some approach in lieu to effective communications but the quality product value that the customers want from those companies. There needs also knowing the cost upon the selection of workers and thus, such surveys done by Merck, found a strong negative relationship among such turnover as well as customer satisfaction. For the SWOT, several UK retailers have learned that brand identity is important than the products being sold and is essential for the future as such, Tesco was aggressive and increased market share steadily behind Sainsbury’s as the share overtook that of Sainsbury for 25 percent lead as there needs to build leadership in continuing regaining market share value.

Moreover, ACNielsen Homescan has surveyed a total of more than six thousand households have quizzed consumers about where they liked to shop and asked them to choose between Asda, Morrisons, Sainsbury and Tesco and others. Then, Tesco was voted in second place after Asda knocked it off the winner’s podium for service and thus, breaking down the figures, Asda did well as compared with the other chains and the shoppers rated it as best retailer over Tesco regulars and can be because Tesco have variety of fascias so people’s experience can be less consistent. Generally, Tesco, Morrisons, Asda and Sainsbury shoppers have reckoned stores best and even, consumers does not shop like in Asda, but sill have good perception of the company as there reinforcement of dominance in UK. Tesco is strong in heartland as Sainsbury but the Asda reformats its stores and prove such risk to their rivals in boasting ways in becoming a growing retailer in UK market.

9.0 Market leader success in UK’s grocery markets:

The reasons for the market leader success of these retailing companies in United Kingdom integrates the importance of its market scale and structure as there will have potential to process good and useful value for the customers through acquiring such global procurement approaches like for example, there will be involvement of development for corporate innovative relationships among such shareholders and suppliers and in a way, these companies have maintained its growth and stability despite uncontrollable situations within their environment and has the ability to reduce product costs in satisfying loyal customers and outcomes a better retail area that ranges in low prices for the services being offered and that these companies have keep in them better vision in lieu to their strategic processes in the market. Aside, these strategic groups have insured a strong brand name and identity that has brought them to increase in sales and profits, growing more stable customer preferences in providing the latter a better range of products and the valuing of better organization culture and its assumptions.

These strategic groups have the power to combine brand value in terms of creating and building sectors in signifying reality in becoming one of UK’s successful food and general retail industry and a better strategy cycle is visible in opening up useful opportunities for growth in UK retailing and the added potentials in developing and expanding globally. The reason also of having a growing financial potency in giving meaning that those groups have positioned well in participating for continuous awareness of the retail markets and the positive drive it implies to the customers for an established investments in adhering growth in rising markets in the UK. There has to be a culture dedicated to distributing the honest value of such prices in complementing food as well as non food ability, and allows the group to utilize the augmented scale to persuade enhanced value for the clientele throughout universal procurement and supply sequence efficiency ways. There is also the need to strengthen these strategic groups’s economic vigor and facilitate them for accelerating market and environment plan out process probably because of a possible European and global development. The Combining of management sources within established retail knowledge that is able of generating global winner in the business as the retail market is fetching ever more worldwide. The reason of success maybe also is the reflection of critical aspects for the achieving of appropriate materials and resources as well as the allocation of market benefits and having capability to influence operating costs for the business success. The reason also for certain diversification upon the minimizing the retail earning instability and then, offering other retailers of a balanced potency and cash stream to subsidize innovative industry expansion and produce added augmentation.

For the retailing services, Tesco usually enters into joint ventures with major players in these sectors, contributing its customer base and brand strength to the partnership and other supermarkets in United Kingdom have done globally and that Tesco began their global operations and focused mainly on developing markets in Central Europe and the Far East and now the United States. The medium term aim is to have half of group sales outside the United Kingdom.

10.0 Compare and contrast any two of the companies in the same strategic group:

The fact that Sainsbury’s allowed Tesco to obtain so distant in advance of the game in conditions of client overhaul, devotion and professed price competitiveness. Sainsbury was accuse of not promoting itself adequately and while managing many parallel customer initiative as Tesco, it has unsuccessful to acquire the development of exclusive services. Tesco has shown faster poignant in expansion of beleaguered store types, planned to reach diverse consumers at unlike times. (Leana and Barry, 2000) One of Tesco’s means weapons in battle for retail preeminence has been its Club card allegiance system as well as succeeding commence of the Club card Plus debt certificate and have revealed Tesco in captivating understandable initiative and building fast on its benefit. Thus, Sainsbury was not sluggish to begin its incentive card countrywide but the approach emerged uncertain with conflicting declarations regarding its purpose. Once launched, the preliminary promotion help generate dumpy expression increase from inside shares of the market. Subsequently, there failed to have main impact and have beset with technological problems. Thus, value positioning does not come out to resolve any of Sainsbury’s tribulations but seems added trouble to the company. The marketplace is single where a lot of innovation can be effortlessly derivative and sustainable spirited gain is a lot difficult to attain but this is what strategic players required to aspire for and in standard basis generate and preserve leadership in the retail industry.

The presence of growth through building new stores is no longer viable now that superstore saturation appears to have been reached and that growth should approach through attraction and retention of customers, increasing share of a customer’s total expenditure or through moving into related, but relevant, products and services. However, there is a clear peril that price cutting will be used for temporary share of market increase, even though its long-term effects would appear to be less positive. Sainsbury’s now has to regain the trust of its customers and the confidence and the idea that Sainsbury has arguably a stronger brand than Tesco but brand leadership has to be continually reinvented and this is what Sainsbury’s has failed to achieve and having looked at various marketing strategies and activities, there sees that its UK success has been built on low prices, cultivating customer loyalty, offering a range of a range of store concepts and expanding into retailing services respectively.