PESTLE and SWOT analysis of WM Morrison’s 2016-2017
WM Morrisons is fourth largest supermarket group in Britain with annual turnover of £16.1 billion for the year ending 2016, a 4.1% decline from the previous year (Annual Report 2016). Such financial figures are reflective of the general health of WM Morrisons which has over the last 3-4 years been losing market share to low-cost rivals especially Aldi and Lidl. In an effort to turn around the ailing supermarket, new CEO David Potts embarked on a turnaround plan, an ambitious recovery plan which aims to fix, rebuild and grow the company as it continues to battle with the hard discounters and other low cost rivals (Mintel 2016; Annual report 2016).
However, it won’t be an easy journey for Potts due to a number of reasons as will be revealed through a Pestel, SWOT and Porters Five Forces analysis.
2.0 WM Morrisons PESTLE Analysis 2016-2017
The current business environment which is affecting the UK food retailing industry is made up of both the macro environment and micro environment. The macro environment is the most general layer of the business environment that is made up of general environmental factors that impact all the supermarkets operating in the UK rather than just Morrisons. Many macro level factors directly impact both WM Morrisons as well as rivals. The starting point for analysing macro-level influences is the PESTLE framework (see figure 2) which can be used to identify how future trends in the political, economic, social, technological, legal and the environment will affect an industry and individual firms (Johnson et al 2005).
Using PESTLE and Porters Five Forces, the report will examine how WM Morrisons can take advantage of its strengths, opportunities created by a tough food retailing environment and faltering rivals like Tesco as well as benefit from the poor performance at Asda.
2.1 Political factors (government action)
In June 2016, Britain voted to leave the EU, a move many predict is likely to cause both political and economic upheaval and uncertainty for the UK economy if it were to happen, at least in the short term. Unsurprisingly, Brexit has sparked political turmoil across the UK with Scottish Prime Minister Nicola Sturgeon still calling for a second Scottish independence referendum to protect Scottish interests in the EU since majority of Scotland voted to remain (Douglas and Gross 2016). The implications to leave the EU would be many, not least the fact that it is already creating Brexit inflation as prices continue to escalate, in part due to a weakening pound that has made imports relatively more expensive, a situation that will only get worse if Britain does leave the EU before 2020 (Davies 2017; Mintel 2016).
2.2 Economic factors
Following the Brexit vote in June 2016, the pound sterling plunged to its lowest for 31 years against the dollar (Toplensky et al 2016). The continued depreciation of the sterling since then has certainly led to inflationary pressures through increased costs of raw materials, packaging, energy and transport costs as well as employment and other cost pressures all businesses face. According to Davies (2017), the UK is already seeing high food consumer price inflation over the 2016 period which has led to increases in food prices. Recently, two major brewers, Heineken and Carlsberg became the latest beer makers to raise prices in the UK, which are being passed on to consumers. The saving grace for Morrisons is that they have the right foundation in place to override Brexit-led inflationary shocks. With more than 15 own manufacturing sites in the UK for instance, they are the most vertically integrated supermarket in the UK. Such own manufacturing capacity means less reliance on external suppliers especially from Europe which is a key strength because products produced in the UK will become more important when the UK leaves the European Union (Mintel 2016).
2.3 Social factors
As illustrated in figure 1, social factors in a Pestel framework include demographic changes such as the ageing population of the UK. According to the Office for National Statistics, the UK average median age has gone up from 33.9 years in 1974 to the current 41 years with the number of over-65s getting closer to accounting for almost a fifth of the UK population (2015).The UKs ageing population presents business opportunities for supermarkets which Morrisons can tap into. Pension age consumers have more incomes since they stay in full-time employment for longer, and thus earn a higher disposable income which makes them lucrative for products and services tailored to them.
2.4 Technological factors
The biggest technological shifts occurring in the food retailing industry are centred on information and computer technology with internet retailing leading the way. The internet has ushered in online retailing which according to Mintel (2016) is changing the economics of food retailing. While the internet is still currently small representing under 10% of supermarket sales, it is opening up the competitive spaceto drive both food and non-food sales, something Tesco, Asda and recently Sainsbury’s, with its acquisition of Argos, are attempting to do (Mintel 2016). Such developments also explain why Morrisons, the last of the big four supermarkets to introduce grocery e-commerce, decided to partner with Ocado.com in 2014.
2.5 Environmental factors
Recent trends that are influencing UK food retail industry include the rise of ethically and environmentally conscious consumers who continually demand firms to adopt practices such as paper packaging and use of recycled materials. Environmental concerns are now global issues today with a Mintel survey showing that more people are now concerned enough about the environment that they are even prepared to exercise their economic power to stop buying products or services from companies that don’t show environmentally friendly credentials. On its part, Morrisons was voted ‘Most sustainable retailer of the year’, at the 2013 Retail Industry Awards after consistently stocking sustainable product ranges as well as engaging in pro-environment practices (Mintel 2014).
2.6 Legal factors
Legal factors include changes to legal factors and in February 2014, new Workplace Pensions legislation, requiring compulsory deduction of pension contributions from workers’ payslips were introduced (Mintel 2014).
3.0 WM Morrison SWOT ANALYSIS 2016-2017
4.0 WM Morrisons Porters Five Forces analysis 2016-2017
WM Morrisons Porters Five Forces available upon request
Armitage, Jim (2017) “Hard times ahead for WM Morrisons and Argos tie-up” Evening Standard, available [Online] at http://www.standard.co.uk/business/jim-armitage-hard-times-ahead-for-sainsburys-and-argos-tieup-a3438051.html [Accessed 20 January 2017]
Butler, S., and Monaghan, A. (2017) “Record Christmas at WM Morrisons 'shows logic of Argos takeover'” The Guardian, available [Online] at https://www.theguardian.com/business/2017/jan/11/sainsburys-record-sales-christmas-week-morrisons-argos-sales [Accessed 20 January 2017]
Davies, Rob (2017) “Beer prices rise amid sobering threat of Brexit-related inflation” The Guardian [Online] at https://www.theguardian.com/business/2017/jan/24/beer-prices-rise-brexit-inflation-heineken-carlsberg-carling-budweiser [Accessed 25 January 2017]
Johnson, G., Scholes, K., and Whittington, R. (2010) “Exploring Strategy”, 9th ed., Prentice Hall
Mintel (2014) “Food and Drink Retailing-UK-2014” Mintel Market Intelligence, London
Mintel (2016) “Supermarkets - UK – February 20016” Mintel Market Intelligence, London
WM Morrisons (2016) “WM Morrisons Annual Report 2016” Available [Online] at http://www.morrisons-corporate.com/annual-report-2016/index.html [Accessed 25 January 2017]
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