Every business has its strengths and weakness, to analyze Valueshops’ SWOT analyses was used. After a thorough research and analyses, Valueshop has carried its SWOT analyses as such:
Strength
The biggest strength of Valueshop is that they provide range of products, so that everyone’s needs are catered for. This is beneficial since it allows Valueshop to target more audiences which, in turn results in higher consumer loyalty. Furthermore, the store is quite flexible in adapting to trends, the researchers at Valueshop are always looking for something innovative and unique, an example of that being introduction of organic food section. The trend has become quite popular in these recent times because of the focus on healthy living, which in itself is a highly profitable sector.
Weakness
Valueshop poses weakness in some of the products such as the kitchen cupboards and drinks in baby, child and toddler segments. They weren’t the strongest sellers and were considered taking up excess space in the inventory. Furthermore, they were resulting in excess inventory usage, creating storage problem for other products. After two periods, Valueshop decided to remove both products from the given segments and instead used that money to invest in other segments. Another weakness of Valueshop is that they are not quick enough in investing in new technology sooner, not being able to get one step ahead of competitors puts us on the back foot and playing catch up, by the time we have invested in new technology other supermarkets have implemented theirs and are using it effectively to improve their operations and customer experiences.
Opportunities
The opportunities in supermarket industries are limited to only upgrading technology and inducing new methods of promotion. The process of implementing these would improve daily business operations and enhance customer experience. An example of this would be, investing in creation of mobile apps and scanners, this would allow customers to scan their items on their phone and their total spend would add up whilst they are shopping, at the end instead of paying at a till they can use the self-check-out counters and skip the que. This would save a lot of time for the customer and increase foot flow in the store. Another opportunity is to expand and grow into different sectors, according to grocery research organization IGD, the market forecast is to grow by 14.8% by 2023, by improving and expanding the product range can allow us to gain some of the market share in the future (IGD, 2019).
Threats
The most obvious threat to Valueshop are their competitors; there is cutthroat competition in the supermarket industry. For example, if the competitors lower their prices every other competitor must do the same to protect its customer base from not going to the opponents. Though this results in smaller profit margins, the customer base is retained. With global warming there are legal threat based on government regulations, which adds on to the pressure for the supermarket sector to adhere to new regulations which improve carbon footprint, these results in a change of operations and heavy costs are incurred. Also, the pending Brexit deal poses a major threat, the uncertainty in itself is a threat because rates and tariffs may increase so negotiating and sourcing products from Europe will become more difficult (Dharshini, 2019).
PESTEL ANALYSIS
“Value shop is the oldest player in the market with its first store opened in Chicago during the Great Depression in the 1930’s. The first UK store was opened in 1985 and although it initially struggled to adapt its model to the UK, it is now a cost leader in the supermarket sector. Its mission is “To be the Ryanair of the supermarkets” and it has a similar relentless attitude towards continued cost reduction. Its value proposition is firmly built around everyday low prices and it competes in all markets with this offer. It is not a market leader in any market sectors, but neither is it the smallest player. It seems to sit happily with a reasonable market share across all age groups. Its strongest product category is Fresh Food where it enjoys a superior 17% market share. Consequently, its profits on Fresh Food are the highest across the industry and across its own portfolio with an ROS of over 18%.”
To under the market of Valueshop better PESTEL analysis was considered. PESTEL analysis is a framework or tools used by marketers to examine and analyze the macro-environment of the business that happens to have a huge impact on the organization.
– Political Factors
The political-legal factor is the first part of the ‘PESTEL’ acronym, it shows how the laws and governments policies are involved and influence the business in different ways whether its due to tax purposes or something simple as their business license. This factor may affect Valueshop because it trades globally. And also because of the pending Brexit decision, it will be harder for them to import/export goods as well as trade outside of the EU. “It also includes other pressure groups and agencies which influence or limit the working of industry and/or the business in the society.” https://keydifferences.com/difference-between-micro-internal-and-macro-external-environment.html
– Economic Factors
The next letter in the acronym stands for economic meaning the effect the economy has on business. Valueshop should be able to withstand any unpredicted economy changes because of its low prices strategy. It is also important for the business to maintain its market share in these conditions while growing internationally. “These factors include the GDP, GNP, interest rates, inflation, income distribution, government funding and subsidies, and other major economic variables.” https://www.feedough.com/marketing-environment/
– Social Factors –
The third letter in the acronym stands for the social and cultural factors of the external market environment. Consumers are becoming more socially responsible for knowing how and where the products they are purchasing are produced from. For example, ethics in a business are becoming more known and should be increasing as customer would like to know how it supports the people contributing to the final product. Valueshop now focuses on improving its ‘Green Image’ for product sectors heavily as it is adapting to these social factors.
– Technological Factors
The letter T in ‘PESTEL’ stands for technological/ technology. Technology in this industry can really help businesses have a competitive edge but can also be a threat if they do not have the latest advancements and their competitors do. Which is why, Valueshop pays attention to have up-to-date technology for comfort of the customers and maintain their loyalty. For example, self-service checkouts, these were invented for many reasons but the main one was to reduce a customer’s waiting time and spread out the flow of customers paying.
– Environmental Factors
The next letter of the acronym Is E which stands for environmental and could arguable be the most effective towards a business and how it influences it. Businesses are being challenged and questions about their ethics and how they treat the environment, the public want to see them supporting their local farmers for trusted and clean products. Retailers are being pressured to be more socially responsible by this and adopt if they have not already what is known as sustainable practices. By not sourcing locally and safely some people feel as if they are harming the environment and are contributing to global warming significantly because of the volume they produce at. This is influencing company’s reputation, which is hard to defend being easier to lose than gain. By using more sustainable materials for packaging creates a negative effect on the customers as it will be more expensive to packing, the prices for the finished product will also rise. Hence why, Valueshop faces issue with providing low prices products.
– Legal Factors
Legal is the next factor that contributes to a business’s macro environmental factors. To trade legally supermarkets, must do a lot more than regular businesses because of health factors etc., the products they sell must be evaluated before they can even bring them in stores. It may even seem minor to some retailers, but it could even lead to the company being shut down. Valueshop gives heavy consideration on legal factors to avoid any issues so that customers have great experience in store.
Porter’s Five Forces
Porter believes that understanding the forces that shape the industry competition is the starting point for developing a strategy. The five forces reveals the position of the business in the competitive environment. They also size the strengths and weakness of the business. It acts as a guide and provides the most important and relevant information for formation of a strategy. (1995) To analyze the market of supermarkets for Valueshop, Porter’s Five Forces was considered the best option. Let’s examine the forces affecting the market.
1- Threats of New Entrants:
The grocery market is primary dominated by few strong competitors such as ValueShop, Drinkit, BigStore, GreenWorld and Focus, these chain possess market share of more than 50% and rest by other small chains. These supermarkets have gained large share in the market due to their high-power operating efficiency, one place for everything, and creative marketing mix. Small Shops have got nothing over these major business. The size and strength of these business acts as a major barrier for new companies with desire to enter into grocery business. It requires a high capital investment to enter into the market. Not only that, large chains such as Valueshop have aggressive tactics in product development and promotion to increase their perceived value beyond the competitors.
2- Bargaining power of Suppliers:
This factor is an assessment of the power the buyers have over supplier that can drive the prices down. Large supermarkets have power over their supplier where the suppliers fear losing business with a supermarket, which will cause them loss in high scale. Valueshop, Drinkit can further negotiate even better promotional prices for products that small individual stores can’t match with. But the threat to supplier doesn’t stop here, the large retailers can easily outsource cheaper products from abroad. The impact of losing a big chain store is heavier on supplier rather than a small store, so they often give in.
3- Bargaining power of Customers:
Buyers face switching cost when changing suppliers. The larger the switching cost, harder it will be for the new entrant to gain customers (Porter M. 1996). But with high standardization of product, it isn’t realistic for the company to believe they remain in power, rather it’s the buyers yielding obdurate high power. To remain customer favorite, Valueshop rewards its loyal customers using good quality products at low cost keeping in mind sustainable and environmental factors. Currently, Valueshop has the highest market share (Period 5). Valueshop constantly tries reaching out for customer needs in every area of focus such as green image, convenience, low pricing etc. Fresh Food having the largest market share of 17.5% over all the major competitors such as Focus with share of 17.2% over period 4. Valueshop continues to strive for large market share in many more segments.
4- Competition in the industry
One of porters five forces suggests examining the figures of competitors and their capability to weaken a company. Higher the numbers of competitors, along with the number of equivalent service and product they offer, the lesser the power of the home company. Valueshop has intense competition with other supermarkets such as Focus and Bigstore. However, Bigstore market share is 13.1%. To have a complete edge over its competitors Valueshop introduced internet service for adults and pensioners. It had a huge impact on supermarkets industry and was considered a big success for online business. Hence, they decided to establish internet service for all segments. Every period Valueshop tries to come up with incentives to promote sales and lower the price.
28.11.2019