Morrisons Supermarket PLC - Performance Evaluation - Example

Morrisons Supermarket PLC: Performance Evaluation Morrisons Supermarket is the fourth largest retail chain in UK with more than 500 stores. Food andgrocery are its main products sold in weekly stores. For over 100 years, Morrisons Supermarket has ruled the retail market of the UK. The founder of this chain of retail stores is William Morrison, an egg and butter merchant, who opened his first store in the year 1899 in Bradford market. In the year 1967, Morrisons was declared as a public company with 80,000 shares becoming instant demand among investors. After showing high sales and a consistent increase of profit for 35 years, the company joins the FTSE 100 for the first time in April 2001 (Morrisons: Company History). As of 2013, Morrisons has captured 11.8 percent of the £101bn value of UK grocery store market. Morrisons is focusing on expanding its online grocery channel due to consumers’ increasing desire to buy from the convenience of remaining at home. In the year 2012, there has been a growth of online grocery market by 15.7 percent with sales having 3.9 percent of the market share. Because of the growing popularity of smartphones, tablets and other technologies that make online services more easily accessible, it has been estimated that by 2017 online grocery retail will become almost double. Moreover, convenience stores are becoming increasingly more popular as customers now tend to shop three or more times in a week to avoid wastage. In recent years, Morrisons has made much progress in this respect with the company opening nine convenience stores in the year 2012. It has plans to open 100 convenience stores by the end of 2013/2014. It has been estimated that the company will experience a 28.6 percent growth in convenience sales from 2012 to 2017, and a whooping 98.2 percent growth in online sales in the same period (“Annual Report 2012/13”, 5). PESTEL analysis PESTEL is an acronymn whose letters stand for Political, Economical, Social, Techonological, Environmental and Legal factors of a business. PESTEL analysis helps to assess the prospects of expansion and also the risks involved of a company. PESTEL analysis of Morrisons Supermarket PLC Political Morrisons being a UK based supermarket is performing within the political framework of Europe. There are various political factors that can affect the performance of the company and are needed to be assessed before making any expansion plans. According to the Annual Report 2012/13 (p.56), the company does not make any donations to political events or ventures as part of its group policy. However, the company does not remain unaffected by various government policies of UK. As a retail store, its revenue is primarily dependent on its sales value. Larger the sales in a year, profit will be larger. Retail sales is highly fluctuating depending on the demand pattern of consumers which in turn depends upon their income and spending power. The spending power of consumers is highly influenced by government’s fiscal and monetary policies. In the recent global economic crisis, like any other country UK too suffered from the economic crunch. During economic depressions like this, the spending power of consumers gets reduced due to increasing rate of unemployment and unstable economic environment. The government has taken several measures to increase the spending power of consumers. For instance, on December 2008 the government reduced VAT rate from 17 percent to 15 percent to reduce pressure on consumers (“Accounting for VAT......”). The functioning of Morrisons is also affected by any decisions made by Competition Commission which regulates the four largest supermarkets in UK in order to avoid price wars. Also, Morrisons’ activities are limited by Health and Safety at work Act and National Minimum wage Act. Economical As part of UK’s retail supermarket industry, Morrison is largely affected by macroeconomic elements. Due to the recent global economic crisis, people’s spending power was reduced along with growing unemployment. As a result, consumers prefer low cost goods to premium quality goods. However, since Morrison is a chain of retail stores, therefore its products have mainly inelastic demand, which means change in price does not have much impact on demand. This is because even if spending power of consumers becomes limited still they have to buy necessary food and grocery items to sustain their daily life. Also, during recession people prefer buying food from stores and preparing at home to eating out at restaurants where food is expensive. To increase its brand value, Morrisons offers fresh food prepared in-store by experts (“Annual Report 2012/13”, 2). Therefore, even in weak economic conditions, Morrisons continues to thrive as it provides quality products at reasonable price. Social In UK, the general trend among customers is to do shopping several times a week, and since a supermarket offers all products under one roof, therefore Morrisons like all supermarkets experiences huge sales throughout the week. Moreover, today consumers have become more health conscious and prefer healthy and nutritious food. In 2010, the company relaunched “Eat Smart” food range that catered the health conscious customers. According to the 2010 Annual Report (p.19), sales increased by 7 percent. In 2013, Morrisons launched a new healthier eating brand, NuMe which provides healthy food and snacks (“Annual Report 2012/13”, 34). Technology Like any business, Morrisons invested in technological innovations to boost its sales by attracting more customers. In 2013, the company invested £27m to launch online food business in order to capture the internet market (Ruddick). Also, to facilitate the customers it has introduced self-checkout and scanner systems which can reduce the waiting time for customers. In addition, Morrisons has introduced electronic system of counting money. Tablets are used in all stores, and to keep track of stock there is a new Oracle-based technology (Steiner). Thus Morrison is known for its liberality which means it is open to new ideas. Environmental Businesses all over the world are focusing on reducing carbon footprint on the environment along with adopting eco-friendly processes. Morrisons has set the target of reducing carbon emissions by 30 percent by the year 2020 compared to 2005 (“Annual Report 2012/13”, 15). In 2010, Morrisons stores provided free reusable bags to customers, and this reduced usage of carrier bags by 126m (“Annual Report 2010”, 22). Legal Like all businesses, Morrisons has to conduct its activities according to the laws and regulations of the country to avoid expensive lawsuits. It has to comply with the Health and Safety at work Act and National Minimum wage Act. SWOT analysis SWOT analysis is a strategically designed process to assess the strengths, weaknesses, opportunities and threats of a business organization. SWOT analysis of Morrisons Supermarket PLC Strengths Morrisons is known for its fresh food supply which is an advantage over its competitors. Food is prepared in-store and this provides the customers wide range of fresh food offers to choose from. Being source and processor of own food products, such variety in fresh food items acts as an advantage for the company and is also extremely popular among the customers. Morrisons believes in providing fresh quality food at reasonable price. Morrison also has strong and efficient supply chain and distribution channels. This is a great advantage for any retail business. Being the fourth largest retail chain in UK, it has a reach to a large customer base thus ensuring high profit every week. Another strength of Morrisons Supermarket is that it has more than 500 stores with an employee base of 128,705 including part time workers according to Annual Report 2012/13 (p.110). Weaknesses In 2003, Morrisons received permission from Competition Commission to merge with a rival grocery Safeway (Finch & Treanor). This helped Morrisons to expand its business in Southern part of UK. However, the company is still largely dependent on the Northern part of UK for major part of its sales revenue. Therefore, any economic and political fluctuations in Northern UK can heavily affect the company. Unlike its largest and closest competitors like TESCO and Sainburys, Morrisons does not offer loyalty schemes to attract customers in order to enhance sales. These schemes allow customers to add points to their accounts for every pound spent in the retail stores. The points can be redeemed in the company’s retail stores. Such schemes induce customers to revisit stores in order to accumulate points. Morrisons is at a disadvantage as the company does not have such offers. Also, Morrisons is mostly dependent on its megastores with only a few convenient stores. By the end of 2013, Morrisons had only 12 convenience stores (“Annual Report 2012/13”, 2). This is another disadvantage compared to its competitors who have large number of convenience stores. Convenience stores are necessary to cater local business and daily shopping of customers. Morrison needs to focus on opening more number of convenience stores so that it does not lose a major chunk of the grocery market. While Morrisons’s competitors like TESCO have spread their operations beyond UK, Morrisons only operates in UK. Therefore, Morrisons does not have the chance to offset any losses incurred in the UK retail market with financial gains earned abroad. This is especially disadvantageous during economic recessions. Opportunities Since Morrisons produces and processes food products in-store, therefore the company has great opportunities to enhance the quality of its products. This is especially a good opportunity to secure more customers during economic recessions as during these periods customers are inclined towards best value at low cost rather than premium quality goods. Such customers can be satisfied by Morrisons thereby increasing profit. Online shopping of grocery items is increasingly becoming popular among customers. Therefore, Morrisons can focus on developing their website to cater to the online customers. So far Morrisons operates only within the UK. Therefore, it has the opportunity to expand its business in growing economies like India, China and Brazil to further strengthen its position as supplier of fresh quality food products at moderate price. Threats The UK government has increased VAT rate from 17.5 percent to 20 percent in order to increase tax revenues to cover deficits (BBC). This can put a large pressure on the UK retail industry. Morrisons has to maintain focus on providing quality goods at moderate price to ensure retaining of market share. This is more important since economic recession has caused people to buy more value goods than premium quality goods. Since Morrisons has not yet developed its convenience stores in all areas, therefore there is risk of getting no permission from local authorities in order to expand business. It is therefore important that Morrisons focus on increasing the number of both convenience stores and megastores. Profit and revenue In Morrisons, the gross profit has fallen by 0.9 percent from 2012 to 2013. Therefore, the company had trouble in generating more cash from sales in 2012. Decline in gross profit means a company has less cash in hand to make payments to creditors, suppliers etc. However, since the decline rate was not very high (less than 1 percent) from 2012 to 2013, hence it can be said that this supermarket company has in it to plan its activities in a more economic way resulting in efficient management of its business activities. The net profit of Morrisons has decreased from 7.18 percent from 2012 to 2013, which means profit per pound has decreased (See Table 1 in appendix). Assets It can be observed that asset management has been good in Morrisons. There has been 6.8 percent increase in total assets from 2012 to 2013. Moreover, current assets have increased by 1.5 percent and liquid assets have reduced by 0.2 percent in the same period. Although increase in current assets means Morrisons is in a good position to pay all debts within a year, decline in liquid assets can lead to difficulty in meeting current debts (See Table 2 in appendix). Conclusion Morrisons need to focus on its pricing strategy since gross profit and net profit has declined from 2012 to 2013. This means less cash in hand which can be a major drawback since a supermarket company is dependent on suppliers. Morrisons is operating in a cordial economic infrastructure since UK government is adopting positive steps to increase the spending power of customers. During recession, the company has performed well because of its diversified food products which are always fresh due to in-store production. Currently, Morrisons is performing only in UK and so its focus must be on expanding its business in other countries. References “Accounting for VAT when the standard rate of VAT returned to 17.5 per cent”, HMRC, n.d., August 13, 2014 from: http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-changes.htm Annual Report 2010, 2012/13 BBC “VAT rate increases from 17.5% to 20%”, BBC News, January 4, 2011, August 13, 2014 from: http://www.bbc.com/news/business-12099638 Finch, Julia & Treanor, Jill “Morrisons clear to buy Safeway”, The Guardian, September 27, 2003, August 13, 2014 from: http://www.theguardian.com/business/2003/sep/27/supermarkets.uknews “Morrisons: Company History”, morrisons-corporate, 2014, August 13, 2014 from: http://www.morrisons-corporate.com/About-us/Company-history/ Ruddick, Graham “Morrisons spent £27m on developing new online technology”, The Telegraph, September 12, 2013, August 13, 2014 from: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10303755/Morrisons-spent-27m-on-developing-own-online-technology.html Steiner, Rupert “Morrisons reveals strategy to haul its business into the 21st century”, thisismoney, July 11, 2013, August 13, 2014 from: http://www.thisismoney.co.uk/money/markets/article-2361173/Morrisons-vows-bring-tech-21st-century.html Appendix All figures in £ million Table 1: gross profit ratio 2013 2012 Gross income Cost of Sales GI/sales Gross income Cost of Sales GI/sales 1,206 16,910.00 0.07 1,217 16,446 0.07 net profit ratio Net income Cost of Sales NI/sales Net income Cost of Sales NI/sales 879 16,910.00 0.05 947 16,446 0.06 Table 2: Total Assets Current assets Liquid assets Gross profit Net profit 2013 10,527 1,342 561 1,206 879 2012 9,859 1,322 563 1,217 947 Read More