Success of Internet Retailers

In UK retail food sector is dominated by only a few supermarkets. The top three for many years are Tesco, Sainsbury and Asda. In recent years, there have been increasing pressures form the internet. The adoption of this may be seen as a combination of push and pull factors. To increase the turnover is an attractive ability. The practice may be seen as one necessary to remain competitive. For consider the impact that E-Commerce has had in the UK food retailing, Michael Porters Five Forces can be used to consider the structure and performance for the industry prior to the occurrence of internet shopping, and how it has changed the industry and the level of attractiveness.

The E-Commerce environment in the food sector was growing and very competitive. In 1990, the two of the top three supermarkets where the same top three as today, the market shares was extremely different for them. Sainsbury had the dominant position, with an 11% market share in 1990 and increasing to 12% in 1992 (Hemple, 2002). Tesco had a market share of 10% and Asda had 6% putting it behind both. The C-op with an 8% market share and Safeway had 7%. With the little legislation impacting on the way, the companies competed apart from the regulations on opening hours and licensing hours. The situation was very competitive with each other. The companies competed in a similar manners, developing own brands, advertising, and seeking to increasing the market share. In 1990, to take the consideration for the market size has increased from around £60 billion, but increase to around £100 billion in 2000 (Hemple, 2002). The competition continues to changing with a greater emphasis placed on owns brand and increased levels of product differentiation being sought. The position has changed from one of many competitors to a situation that can be known as oligopoly. Tesco has become a dominant company with 16% market share in 2000 by increasing over 9%. Sainsbury has fall the retained second place; many changes have been required to keep it on to this position (Hemple, 2002).

The competitive strategies have to use of EDI and the store loyalty cards. Tesco used the tool very effectively, and many other stores followed the suit, for example, Asda and Safeway, those cards have been discontinued as a lack of real benefit as a result of inability to integrate the information into the value chain to increase loyalty. But Sainsbury acted totally differently, their reward card has been transferred to an external management company. Another example, Nectar, points are given for shopping and expenditure on a Barclaycard and at BP petrol stations. Then, it may be given a reflection for the Tesco expansion of the scheme which includes the inclusion in the scheme of Allied carpets. Asda has increased 10% market share of its position to third. By December 2000, the top three used to control only 51% increasing and at 60% (Hemple, 2002).

The method used to compete has innovative advertising, for example, Tesco Chicken with Dudley Moore advertisements looking for illusive free range chicken or salad. Sainsbury used of well known as personalities, such as the recent series of Jamie Oliver advertisements by increased range, such as kitchen wares and more clothes. Asda introduced the George range, and Tesco followed the suit also, the supermarkets entrance into banking has also demonstrated additional related diversification. Increased shop opening hours have also seen some stores open twenty-four hours per day, mostly the Tesco stores.

The online shopping is a pull factor with the attraction of increased sales pulling the supermarkets, for any theses unwilling it may have been seen not to compete was a high risk. Tesco has been strengthening the leadership strong position over £35 million in first five years, followed by Sainsbury £30 million investment (Hemple, 2002). Tesco and Sainsbury appear to be making a success and establishing themselves well. The market is worth £3 billion in E-Commerce sales, and expected to increase to £75 billion by 2008. This may be seen as a good reason to enter the market; however, the learning curve is steep. Waitrose are entering the market very slow, while Safeway have attempted and withdrawn from the market. Companies always focusing on their strategies, for example, Safeway open more superstores, Morrison concentrate on expanding traditional operations with other product forms of differentiation.

In recent years there have been no real new entrants, but, it is worth noting the companies such as Farm Food have sprung up. It is because of there are also new entrants into geographical areas. The expansion of Morrison has been predominantly located in the North down to the midlands and south. There always have a new entrant into some areas. Another new entrant may be somewhere around Iceland. Even in the food retail sector was a specialist food store, the product ranges that have been non frozen food based have increased ad with the advent of E-Commerce the pull factors has attracted Iceland into offering fresh foods through internet shopping services. It brings Iceland into a blurring of the different sectors and more direct competition in the industry. This has been undertaken to allow them to compete directly. The head of Iceland's Home Shopping Department has stated the following: “It is a great opportunity for us to use E-Commerce to compete head-to-head with Tesco and Sainsbury” (Thomas, 2002).

The power of the buyers in this sector has also been low. Of course each individual makes up only a minute proportion of the revenue that is earned by a company. The strength is in the way that the market trends to react to common factors with consumers finding attractions and distractions similar. The demands of the consumers, as a group, are a major driving force. For example, there has been in increased demand for the provision of organize and environmental friendly products. These may not have sold as desired due to the increased costs; it was the option that was demanded. The companies have sought to lower their costs as the price is stabling block. Iceland was one of the first to respond and found that turning organic was not financially viable, and also had to undertake a turn away. In the strategies adopted other demands have been reflected such as Sunday and late night opening. Tesco loyalty card schemes targets money off vouchers for the different types of products that the customer profile indicates they may prefer and find useful also. This offer indicates the level of important that is attracted to the relationship with the customers. Also it can be adding a great deal of value to the value chain. Tesco believed that a part of reason behind the rise chain has been as a result of the better customer relationship that the company has developed with the customers thought out from the loyalty card scheme vouchers. Although each individual may not be significant and have a low level of power, as a group they must be seen to be very powerful and loyalty can be created in a sectors.

The increased of market share and increased of buying power has changed relationship with the suppliers. The co-operative may seen as the ideal trading partner for many framers, even laid down to it was run as a so-operative to sell goods, such as farmers were getting a fair deal. While the customer demands have increased both for market share with more commercialized supermarkets the pressures have been passed onto the suppliers. The suppliers are always often smaller, and as supermarkets can buy an entire harvest or production of a year, or make up a large percentage of the buyers, and then the power hold in the bargaining relationship is very strong and powerful.

Based on the lack of choice regarding varieties of different fruit and the method that goods are sold. This has been controversial, and the only way the some issues have been resolved has been though the intervention of the trade association or even outright protests. From the recent markets, the pig farmer's protests at Asda who were not marking the economy range meat as being from France. That makes the supermarkets have the power to dictate terms and conditions as well as the price (Short, 2002). When comparing to another countries, an investigation prepared by the government into the way that process are such that there is a higher than average profit in the UK supermarkets. However, it also found that no price fixing was occurring and increased profit was mainly attributable to more expensive overheads and development cost in UK supermarkets. While the level of control to manage the supply chain this has aided with the development of E-Commerce sales for companies, such as Tesco, where there are extensions into different products including flowers direct, wine and electrical goods.

Individual need to go shopping, this is the reason how the goods and services are provided. There are few substitutes in finite terms, other than the general choices which a supermarket will offer, for example, pasta being a substitute for potatoes, or cheese being a substitute for meat. However, these are not true substitutes in the supermarkets sell them all as well. Substitutes may include a lot of the use of restaurants, the ability to order take away food, either by in person, on the telephone order or though the internet. For example, Dominoes Pizzas springing up the variety is increasing. But, this is not a real alternative for many purchases transactions, also and is a low threat level. For those companies that who do not offer E-Commerce choices may be seen as the most powerful substitute, the ability to use the internet as a substitute method of attaining the goods needed rather than going into a shop location.

In the current market, it is a very competitive market situation. The structure has been changing with a few companies gaining increasing dominance. The profit margins are higher when comparing with other countries, and also this may be seen as a pull factor with increased emphasis on the specific locations, high property process there are also barriers. Moreover, it is a mature market new companies are likely to enter though acquisition rather than through organic growth, known as Wal-Mart had purchased of Asda. When it arrives to E-Commerce has not been as an attractive an option as initially though. There is a great deal of potential, but the barrier and learning curve are getting higher and higher. There are few real pull factors attracting more companies to enter into the food market of E-Commerce with the current situation. Therefore, if anything the internet has served to reinforce the dominant companies and increases the difficulties of the market for any new entrants. Overall, the market is larger, but also more difficult to operate and get into; as a result the companies must conclude that the attraction of the current market situation may be seen as falling with the increased difficulties. But, anyway the long term pull factors still remain the same stage.


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