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Autor: anton 14 January 2011
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INTERNATIONAL STRATEGY ASSIGNMENT
Case Study - Waitrose
Waitrose was setup at Acton in 1904; it was founded by Wallace Waite, Arthur Rose & David Taylor. In the year 1906 Taylor left the firm, the first shop named Ð²Ð‚ÑšWaitroseÐ²Ð‚Ñœ was formed. The company was later acquired by John Lewis Partnership in the year 1937. At that time it had 10 small service food shops and had a turnover of 150000 GBP. After the acquisition, Waitrose now are specialist Supermarkets, having more than 175 supermarkets all over UK mainly in the south-eastern region. It now boasts a work-force of over 37000 employees and many new stores. They offer fresh produce, poultry, bread & meat. Waitrose is a company known for providing high and good quality products and it targets the higher class with its good and high quality products. Even though itÐ²Ð‚â„¢s a comparatively smaller company than its competitors (Tesco & J.Sainsbury, Iceland), it was successful in its business and was a profit making firm, this was all because they use to perform things strategically.
KEY EXTERNAL FACTORS IN THE WAITROSE ENVIRONMENT
There are many external factors which can be identified, which affect the working culture and environment of the company & in this case Waitrose. One can categorize these factors by use of PESTEL ANALYSIS. Here we look at the various external factors under various heads in the analysis such as Political, Legal, Socio-cultural, and Environmental.
The POLITICAL factors provide some important key drivers of change for Waitrose. The company Waitrose faced two political environments, one in the United Kingdom and the other in South Africa. The government was stable in the UK and in South Africa but there was still different in many ways, which in turn create drivers of change. South Africa was chosen by the company to outsource its citrus fruits. In order to maintain the quality of products Waitrose created a Foundation in South Africa for the welfare of the farmers. The trade policies, foreign trade regulations were favourable for the growth of Waitrose as the company believed in quality and honest pricing; they also hold a Royal Warrant with Queen. The political factors are very important for Waitrose because maximum of its seasonal products are imported, thus they have to abide by the laws of the home country as well as the exporting country.
The LEGAL aspects that affect the working environment of Waitrose are factors such as competition law, employment law, health & safety. Waitrose is one company which keeps quality of products as one of the most important aspects in the working of the company. The
Employment laws in the UK are highly regulated, such that the company has to abide by the disability, racial, sex discrimination, pension laws etc. These laws in turn affect the working of Waitrose, and it has to device policies in accordance to these laws. Health and safety is an important external factor for Waitrose. An example of their policy was to help the farmers in South Africa; the company gave them educational facilities, disease knowhow for their benefit. This gave a positive effect on Waitrose, the people there trusted them and this increased their goodwill in the country. The competitive law is also a stringent one which affects the working environment of Waitrose.
SOCIO-CULTURAL factors affect the working of Waitrose in many ways. The UK market was demanding for better quality and healthy food. This did affect Waitrose and they did reciprocate to the need of the people. They were the first to launch organic food in the UK. Education was a not a factor for Waitrose in UK but it was definitely one in South Africa. The farmers were very poor and thus were not very well educated. Population demographics look into many factors such as income (as in the minimum wage rate in the UK), age, sex, mobility, location. These factors do influence the policies and functionality of Waitrose externally. Income distribution is also seen as an important factor because the products have to be within the reach of the targeted customer.
Environmental factors are affecting the external working of Waitrose. The factors under this are environmental protection laws, waste disposal and energy consumption. It is because of the change in climate due to pollution and other environmental issues that the governments have introduced very stringent environmental laws. Waitrose is affected by these environmental changes because they are mainly into fruit & vegetable and it products, which are in turn affected by these changes. Thus they have to keep a close eye on these issues. Waste disposal is also has its impact on the environment, there are many scientific reasons supporting this argument. For this Waitrose has reduced miles driven year on year, it tries to source electricity from renewable sources. This helps to reduce the energy consumption.
Thus these are the external factors which are identified in the working of Waitrose and the Environment around it.
KEY INTERNAL FACTORS
For identifying the internal factors of Waitrose we use the PORTERÐ²Ð‚â„¢S FIVE FORCES. Here we look at the following concepts RISK ENTRY BY POTENTIAL COMPETITORS, RIVALRY AMONG ESTABLISHED COMPANIES AND SUBSTITUTE PRODUCTS. By using these concepts we identify the internal drivers for change in Waitrose.
Waitrose does have substitutes to their products but they have an edge over their competitors in this context. This is because firstly their quality and brand equity have a good hold over their customers, secondly they do not target the entire market. Cull says: "Because this is our business, we want the very best for the customers to ensure future success. It was a key decision to feature partners in the campaign, which uses them as a point of difference, distinguishing us from our rivals (www.guardian.co.uk ). The targeted customers of their products are richer class. The most important reason that they have loyal customers is because of the quality they provide. The customers of Waitrose believe in the company, such that even if they get the same goods cheaper in other stores (Tesco, Azda) they will still stick to Waitrose. In the product line the fruits and vegetables they put on the market are priced at a premium. Ð²Ð‚ÑšFor anyone who enjoys food and can afford to pay a bit extra, it is easy to understand why the chain has built a followingÐ²Ð‚Ñœ. (www.guardian.co.uk )
RISK OF ENTRY AMONG POTENTIAL COMPETITORS
When Waitrose was taken over by John Lewis, the status of Waitrose improved in the eyes of the consumer and the market. With the help of John Lewis, Waitrose strengthened its supply chains and economies of scale. With the introduction of self scanning in some stores it reduced its cost and provided better services to the consumer. Waitrose reduced costs in many ways, for example the internal transport system of Waitrose with the help of high end technology reduced their gas cost and saved a lot of money. This internal factor was used by Waitrose for maximum benefit.
The consumers of Waitrose were loyal to the company. All credit should be given to the working culture and brand image of the company. "I must personally get 50 letters a week from people saying 'when are you going to open in our town?'" says Waitrose managing director Mark Price. "We don't so much have customers, as fans." (www.guardian.co.uk).
This shows us the loyalty and love for Waitrose from their customers who are ready to buy their products at a higher price. It difficult for new competitors to enter the market and challenge Waitrose because of the image it holds in the eyes of the consumer. There are companies entering the UK market, and there is a potential threat to Waitrose. For example Wal-Mart took over Azda a few years back. But Waitrose is to an extent on the safer side due to the goodwill they hold in the market.
Government Regulations can play an important part in internal working of the company. Recently there was the Congestion Law enforced in London. This law states that one has to pay a certain amount while entering different parts of the city. And if the Waitrose store is in that part of the city then the cost of the product will increase. This will have an effect on location of the store, thus it might be a barrier for Waitrose.
RIVALRY AMONG THE ESTABLISHED COMPANIES
The rivalry among established firms is of great magnitude to companies like Waitrose. There are not many competitors for Waitrose in the market; Tesco, Sainsbury, Azda & Marks and Spencer are some of them. The main competitors for Waitrose are Azda & Marks and Spencer, because of they also supply good quality products in the market. Even though Waitrose holds 4% of the retail market approximately, relatively smaller to its competitors, it has a strong hold over its consumers. The growing demand in the market narrows down the competition between the other established firms. Owing to quality and likeness towards the product by the targeted buyers there was an increment in the demand of their products. The self-styled "chubby grocer" from Crewe, who believes there is a direct correlation between the girth of a food retailer and the quality of the food he sells, has had a bumper year. Last reported profits stand at Ð’Ðˆ242m on sales of Ð’Ðˆ3.7bn, and figures for the end of 2007 are on course to show a jump in sales by 7 per cent. In its weekly update on Friday, the business reported growth of 5.1 per cent (independent). When it came to fruits, Waitrose is the final target of the buyer. Thus they this competitive advantage over other established firms. Waitrose depends a lot on sourcing of its products, thus if one year or season it does not work out for the country, it will cause a decline in the demand for the product. This will have a positive influence on the other established firms which will give them a competitive advantage over Waitrose.
High fixed costs can be a problem for the companies. Waitrose being a large organisation will face high costs in sourcing their products and even maintaining their own farms. This will impinge on the profits of the company. Due to their strategy of dependence on sourcing products can be dangerous for the company which can in turn lead to writing off investments on assets.
MAJOR PLAYERS: MARKET SHARE
To explain the strategy of Waitrose in the market we use the concept which is BOWMANÐ²Ð‚â„¢S STRATEGY CLOCK.
BOWMANÐ²Ð‚â„¢S STRATEGY CLOCK
In Waitrose we identify that they use Focused Differentiation as their strategy in working of the company. The meaning of the strategy used by Waitrose is as simple as the word differentiation which means being different from the strategy used by their competitors. The fact to be noticed is that they focus on a particular range of products and a select market, thus they have a focused differentiation strategy.
Waitrose sources its citrus fruit from South Africa and only recently they started importing other fruits from there as well. This fruits in the eyes of the consumer hold the quality factor, therefore the company charges a premium for the product. The company also known for its wine, has a good reputation for the product. The main market for Waitrose is the south east, and it provides a host of facilities to maximise their profits in that location. Waitrose has played its game very sensibly, this is because wherever they have their stores the warehouse for supply is very strategically located. Thus they save on costs and earn a higher margin. In comparison to its competitors ( For example Tesco) they do target the broader market, they target on in town stores with a extensive range of food products which catch the fancy of the upper socio-economic strata of the society. The consumers of Waitrose are concurrent to the consumers of John Lewis Partnership. As they are a division of the John Lewis Partnership their profits are also paid back to the employees. Thus the organisation has a pleasant environment, which makes it honest, fair and ethical for the employees. There is a transperancy in the working and records of the company. By use of this strategy Waitrose increases the loyalty of their employees, which in turn has a positive effect on their efficiency.
Ð²Ð‚Ñš We have the lowest staff turnover levels of any food retailer in this market and we have the highest level of longevity. It is not uncommon ifor people to stay with us for 20 to 30 years. All our heads of buying have worked in the business for more than 25 years, and you will find that most people at senior levels have spent a long time with the partnership. Commercially that gives us huge strengths because there is a consistency to our operation. People instinctively know our customers, and what is right and what is wrong.Ð²Ð‚Ñœ
SUSTAINABLE COMPETITIVE ADVANTAGE
Waitrose does have a sustainble competitive advantage, but there are some changes that the company needs to carry out in order to have a an edge over the competitors. Waitrose formulates all its plans by keeping the long term results in picture. Waitrose introduced SEDEX in order to strengthen its choice of suppliers. SEDEX is a process which is carried out before they build a relationship with any supplier. SEDEX looks at many aspects like, if the company is following all the laws, ethical grounds and reputaion of the supplier. And only then will Waitrose give the supplier the contract. SEDEX was developed by Waitrose so that they do not face any problem in the future with its suppliers. The main strategies developed and implemnted for the company is to maintain its goodwill and respect it holds in the market. There are a few factors which will hinder the long term goals of the company.To overcome these factors Waitrose has to rework on its strategies so that it is able to long term advantage. The strategic placement of the stores and warehouses help them to gain maximum advantage in the current situation as well in the future. But for the long term the company has to strategically buy new stores and enter new locations in order to capture the targeted market.
IMPLEMENTATION OF STRATEGIC CHANGE IN A LARGE ORGANISATION LIKE WAITROSE
Strategic Change can be implemented by large companies, depending on the change that is required to be implemented. That is it depends on the magnitude of the policy or strategy that is to be implemented, and how will it affect the working of the company ( here Waitrose). We use the BALUGAN & HAILEY CONCEPT.
They are minute changes that can be implemented in the working of Waitrose which can be adjusted with the current strategies of the company. For example the company can change its strategy for its internal transport system. They use the strategy of minimising the miles used by means of high end technology ( EURO V compliant trailers).
This policy can be executed by Waitrose as they do not affect the core strategies of the company. These strategic change brought by using this change may need to be implemented immediately. A situation might occur when Waitrose needs to cut down on costs due financial reasons or change in the market environment. For example they might need to change their supplier due to cost reasons or because of the market, they could carry out the procedure without being a hinderance in the working of the company.
This is a type of change which affects the core strategies of a company, but they take effect over a period of time. Waitrose can face situtaions in which it might have to rectify its core strategies. If the UK laws change, they might lead to a resultant change in the policies and strategies of Waitrose. Generally the government gives time to the respected companies to adapt the laws in the strategic framework. This will not be a problem for Waitrose as it would get the stipulated time to change their method of working, thus it can implement these changes without much difficulty.
Revolutionary changes can be very difficult to put into action by large companies like Waitrose. The enormity of the change makes it difficult for companies like Waitrose to adapt these changes. For example there is a financial crisis in the country or the goodwill of the company is declining drastically, the company has to react to these changes as soon as possible, which makes it more difficult for the company to implement. For a large company like Waitrose goodwill acts like a spine for the company, and any damage done will have a significant on the company. These kind of changes might hamper the work culture of the company if corrective measures are not taken, but if the measures implemented do not have any positive affect it will have a negative impact on the long term planning of the company.
Thus companies like Waitrose might be able to implement strategic changes but revolutionary changes might create a huge problem for them.
CONCLUSION AND RECOMMENDATION
Waitrose is a company which follows the focused differentiation strategy, thus it believes in targeting and achieving long term objectives. The backbone of Waitrose is to maintain the quality and brand equity of the company. The company has loyal employees as well as customers. As they were a part of the John Lewis Partenership the profits of the company were shared by the employees of the firm. This was a added incentive for the employees which would help in deriving a better performance from them. Waitrose is not established all over UK and has market share of almost 4%. Waitrose had a limited range of products, but they mastered the selling and sourcing of those products.It does not compete with the companies like Tesco and Sainsbury, it targets a select market and maintains it hold over its consumers. Waitrose abides by all the laws of the country and holds a environment friendly image in the eyes of the consumer. The targeted customers are the upper socio-economical class. They used SEDEX to help them in perfecting their knowledge about their suppliers so that they do not have any problem in the future. Whatever strategies, policies, structures they followed and implemented were for the long term benefit of the company.
Waitrose has a good strategic outlook towards the market, their policies are very safe. In order to expand the hold of Waitrose in the UK market it should open stores in new locations. This would prove advantageous to them because of their goodwill. This would lead to an increment in the share of Waitrose in the UK market and would increase their profitability. But this should be carried out in the same way as it done in the south west, with the help of strategically located warehouses. Waitrose should also look out for different locations for sourcing its products and not stick to South Africa. This would decrease the dependence of Waitrose on South Africa, and reduce the risk of the company. The company currently does not have any problem with sourcing from South Africa but it should be ready for anything in the future. They should also keep the environmental issues in mind. Waitrose should not diversify and increase its target market, because its too late for them to enter that market. This would also require a huge investment, which is not possible for Waitrose at this time. And by entering the larger market it would demote itself in the eyes of the upper market it targets. Other than these issues, Waitrose is on the right track and would succeed in increase in increasing profits and market share of the company.
Ð²Ð‚Ñž Johnson,G; Scholes,K et all; Exploring Corporate Strategy; FT Prentice Hall, 2005
Ð²Ð‚Ñž http://www.templeton.ox.ac.uk/erd/Issue43.htm (By Richard Cuthbertson, Research Fellow, Templeton College, University of Oxford)
Ð²Ð‚Ñž Cuthbertson, Richard. "Quality fresh opinions, honestly given: interview with Mark Price, Selling and Marketing Director, W", European Retail Digest, Autumn 2004 Issue
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