1. What are the major innovations that have been introduced to the retail market? How have they affected the competitive dynamics?
Retail industry have always been dynamic in adapting to the changing requirements of the market. Both operational and strategic innovations in this industry aim to achieve competitive advantage over rival. Thus, Sainsbury was the first to launch a hypermarket, “Sainbury SavaCentre”, a large store with an extensive non-food product chain. This development started a new wave of competition, where retailers opened ever-larger hypermarkets to meet consumer demands. Another innovation in the industry was “An inclusive offer” by Tesco, a program which included provision of various brands and products (including private) in order to appeal to all consumer groups and not to target only one customer segment. Loyalty programs were an attempt to gain customer loyalty by offering rewards for their purchases both in own stores and for the products of their partners. This innovation changed the competitive landscape, since the number of interested parties increased due to the involvement of other partners, such as banks and fuel suppliers. Furthermore, business diversification into own brands of non-food products put retailers in direct competition not only with food stores, but also with a large number of non-food producers. Lastly, online business has revolutionized the concepts of retail and customer approach. The competition has been shifted from the stores to web-pages, which required different competencies and innovative distribution strategies.
2. What is driving the success of international expansion? Whose model is better? Why?
Limited possibilities in the local markets force retailers to expand globally in order to continue their growth and explore new opportunities for business development. International expansion in Tesco and Sainsbury were following completely different paths. Tesco’s main expansion strategy is based on the acquisition of the local retailers in the target countries, thus obtaining their market share and expertise about the peculiarities of the market. The choice of the target markets was not only considering growth potential in the region but also the strength of local competition. Their success was also based on the ability to establish good relationships with local partners and to hire local representatives for management positions. Tesco deviated from their acquisition strategy only in the U.S., where they opened a chain of new stores by using unorthodox practices and bold strategies. Sainsbury international strategy did not achieve the results similar to those of Tesco. The development of new markets was mostly done through opening new stores, rather than acquisitions. However, this strategy was not very successful in the Northern Ireland, where Sainsbury faced by legal issues. Their expansion to Egypt through acquisition of a local retailer Egyptian Distribution Group SAE was also not successful, since it led to the sale of the shares due to low profitability.
3. Who are the immediate competitors? Who are the impending competitors? What’s the difference?
The immediate competitors are the companies, which offer the same products as the company, such as Tesco and Sainsbury. However, competition also includes impending rivals, who represent a potential threat for the business. Thus, although retailers are not in direct competition with the electronics producers, since Tesco and other retailers started producing private brands of non-food items, they may enter into competition with producers of non-food products.
4. Identify the difference between growth through acquisition and organic growth? Which companies are leveraging which growth strategies?
Organic growth is represented by expanding customer base, increasing output or opening of the new stores. It is the growth of the existing business. On the other hand, growth through acquisitions is based on acquiring other business and thus increasing sales, gaining new customer and penetrating new markets. While on the first stage of their development, both Tesco and Sainsbury have been using the strategy of organic growth, Tesco changed their growth strategies, especially for their international expansion programs. Sainsbury, on the other hand, was trying to pursue organic growth and to expand by opening their own stores in other regions.
5. How will the impending economic downturn affect the market?
The impending economic downturn may have a significant effect on the market landscape in the retail industry. Due to the increase of consumer debt and a decline in income, discounters may gain an advantage over the more traditional store types. Moreover, the trend for store consolidation is going to continue, with the smaller chains being taken over by larger ones. Although the prospect for food retailers are quite positive, the most growth is expected in the non-food segments of their business.
Hess, E. D. (2007). The road to organic growth: how great companies consistently grow.
New York, the United States of America: McGraw Hill.