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THE UK SUPERMARKET INDUSTRY

By

SAMUEL GIBBS

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The UK Supermarket Sector

Introduction

The supermarket is one of the main economic sectors in the United Kingdom. This paper

presents a STEEPLE analysis on this sector with an aim of establishing its current status. The

analysis reveals that the UK supermarket sector has encountered uncertainties, in the recent

past, caused by declining consumer spending, globalization, growth of online shopping, slowed

economic growth, negative balance of payment, high inflation and unemployment and

development of a stringent regulatory environment.

STEEPLE Analysis

Social

The social environment encompasses lifestyle and demographic factors that are likely to

affect the performance of the industry. Decline is consumer spending power is one of social

factors that have had a major impact on the UK supermarket industry. Performance of

supermarkets is highly dependent on consumer’s income and willingness to buy. High rate of

inflation and unemployment has reduced the spending power of UK consumers. Consequently,

consumers are spending less on supermarket products. In January 2014, Morrison Supermarket

issued a profit warning sighting the declining spending power of consumer as one of the chief

causes for the decline in the supermarkets profits (Butler, 2014). Globalization is another social

factor that has influenced the UK supermarket industry. Globalization is a phenomenon where

world societies become increasingly interdependent and unified (Hanley, 2011). Globalization

has affected the UK supermarket industry both directly and indirectly. Globalization has exposed

UK supermarket to competition from foreign multinational such as Asdas. Globalization has also

affected employment rate, cost of living, equality and inclusion within the UK society. This has

an indirect impact on supermarkets.

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UK Inflation Rate

Source: Office of National Statistics

Technological

Online shopping is one of the technological factors that have made a momentous impact

on the UK Supermarket industry. Statistics indicate a substantial increase in online transaction

within the industry. According to Butler (2014), online shopping accounted for over 15% of UK

grocery sales in the month of December 2013. This percentage translates to revenues worth

£900 million. Online sales have been driven by advancement of technologies such as smart

phones, tablet computers, which customer use to buy from any location. Online shopping has

led to an introduction of new business models such as convenience stores, delivery service and

virtual pure plays (Yousept & Li, 2004)

Economical

Demand for supermarket products has gone down due to inflation. According to Bulter

(2014) food inflation stood at 2.5% in the month of December 2013. Consequently, customers

purchased few food products in order to save money. Morrison and Tesco recorded declines in

sales of food products. High prices of petrol have also encouraged online shopping. Customers

have shifted to online shopping in order to save money from the purchase of petrol. Morrison

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main store recorded a decline of 5.6% while its convenient stores have recorded significant

growth in sales. There is a positive outlook for the industry as, in 2013, the country recorded the

lowest unemployment rate in five years. The market structure of the UK supermarket industry is

that of monopolistic competition. The industry comprises of numerous competitors with distinct

brands and services. Competition in the industry is fierce. The market is dominated by five

major players; Tesco, Safeway, Morrison, Asda, and Sainsbury. The five players control 72.5%

of the market share (Seely, 2012).

Environmental

This element is concerned with how environmental issues affect the performance of

supermarket. Environmental consciousness is one of the factors that have affected the

operations of supermarket. The UK population has become very conscious of the environment

and environmental issues (Moncure & Burbach, 2013). This consciousness has been brought

about by high levels of education and concerns generated by environmental issues such as

global warming. Consequently, consumers are exerting pressure of business organization to act

responsibly towards the environment. This implies that supermarkets have to incur additional

cost in making their systems and process environmentally responsive, maintain a favorable

image among customers. Some supermarkets have gone a step further and are using

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environment issue to create a competitive advantage. These firms are investing in technologies

and systems that protect the environment in order to establish a favorable position within the

market.

Environmental laws and regulations are also significant factors in the supermarket

industry. Environmental phenomena such as global warming have elicited concern from

governments and other regulatory authorities. This concerned has resulted in the establishment

of stringent environmental laws and regulations. Consequently, supermarkets are incurring high

costs in trying to ensure that they comply with laws and regulations.

Political

The political element of the framework is concerned with how political regimes within the

country affect the performance of the supermarket industry. Legislations are the most significant

political factors that affect supermarket industry. In the recent past, the government has enacted

various legislations that have an impact on supermarkets. Grocery Codes Adjudicator Act 2013

is one such legislation. The Grocery Codes Adjudicator Act 2013 was established to control the

interaction between supermarkets and suppliers (The UK Government, 2013). It seeks to

ensure that large supermarkets do not abuse their power over suppliers. The UK government is

also planning to introduce legislation for curbing price wars among supermarkets (O’Brien,

2013)

The political environment can also affect supermarkets indirectly by influencing the

social and economic environment (Deloitte, 2012). The political environment has a significant

influence on economic policies such as government spending and taxation, and social policies

within the country. This implies that the political environment has the potential of influencing

social and economic factors that affect supermarkets.

Legal

The legal environment comprises of laws and legal matters that have the capability of

affecting the operations of supermarkets. There are numerous laws that affect supermarkets

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including antitrust laws, capital market laws, environmental laws, labor laws, and food and

safety laws among others. Supermarkets have to comply with these laws in order to avoid

adverse consequences such as fines, deregistration, imprisonment of staff, and many others.

Ethics

Ethics refer to behaviors that acceptable within a given society. Unlike laws that are

founded on legislations and statutes, ethical principles are founded on societal values, norms

and beliefs (Fox & Vorley, 2004). Supermarkets have an obligation to adhere to the ethical

principles of societies in which they operate. Food wastage is one of the ethical issues that have

confronted supermarkets in the recent past (Smithers, 2013). Supermarkets have been

subjected to increased pressure in order to reduce food wastage.

Unhealthy food is another ethical issue that has confronted supermarket. Supermarkets

have faced significant criticism for promoting the consumption of unhealthy foods through

advertisements (Burns, 2012). Today, supermarkets are under pressure to reduce consumption

of junk foods. Recently, Morrison supermarket had to substitute sweets with fruits at the exit

points of the supermarket’s stores.

Linkages and Evaluation

There are significant linkages between the STEEPLE factors. For instance, consumers’

spending power, which is a social factor, is influenced by the economic and political

environment. Similarly, economic factors such as inflation and unemployment rates are

influenced by political factors such as monetary policies and development policies. The political

environment also has a significant influence over the legal issues that affect the supermarket

sector. The main significant factors affecting the supermarket industry are political and

economic factors. These factors can be considered critical because they have a substantial

effect on operations of supermarkets and other STEEPLE factors. The political and economic

factors influence legal issues such as taxation, social issues such as income trends,

environmental issues such as environmental laws, and many other factors.

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How Human Resource in the Supermarket Industry has been influenced by

Environmental Contexts

Human resource management refers to activities involved in the recruitment, hiring,

compensation and development of employees. It is an important facilitating function in all

organization. This section describes how human resource management practices within the

supermarket sector have been influenced by the environment forces within the sector.

Example 1: Strategic HRM at Tesco

Strategic human resource management (SHRM) is one of the practices that have been

motivated by the environmental forces operating in the supermarket industry. As the STEEPLE

analysis reveals, supermarkets are operating in a high level of uncertainties due to high

inflation, high unemployment rates, globalization, low economic growth, and declining spending

power of consumers. Consequently, organizations have to established ways of entrenching their

position within the declining market and competing against fierce rivals. Supermarkets are under

pressure to reduce cost and enhance their appeal, in the market. SHRM is one of the

approaches that supermarket are using to reduce cost and enhance their position in the market.

SHRM is a concept that focuses on using the organization human resource in realizing

the firm’s strategic goals (Caliskan, 2010). This concept seeks to use the organization’s human

resource to create a competitive edge. The SHRM concept is founded on the belief that

employees can be a significant and sustainable source competitive advantage (Shaikh, 2012).

This is because human resource strategies make it difficult for other organization to replicate as

they involve the interaction complex elements such as organizational cultures and values.

Supermarkets are now using their human resources to develop specific competencies that help

them to compete. Tesco is one such supermarket.

Tesco is among the largest and oldest supermarkets in the United Kingdom. The

organization is largest private employer in the UK (Wilton, 2010). In Tesco, the human resource

is considered the most valuable asset of the organization. Tesco believes that the success of

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the organization depend on the people they work with and the people who shop on the

organization (Wilton, 2010). This statement reveals the central role given to human resource

within the organization. Tesco has invested a lot of resource in training and development of

employees. Tesco believes that the best way of getting the highest return on investment made

on employees is through training (Gulyaz, 2011). Tesco has placed a significant emphasis on

training and managing the development of its employees. Tesco has developed a number of

training programs for its operational employees including; introduction training; first serve

training; hygiene training, and multi skill training (Gulyaz, 2011). The organization has also

developed training programs for managers including core skills; the emotional cycle change

program; team building; manning resistance; plan-do-review program; coaching and feedback,

and many others.

Another initiative by Tesco in order to ensure that they develop an effective workforce is

providing competitive pay and benefit packages (Wilton, 2010). Wages and benefits are

extrinsic motivational factors for employees (Nohria, Groysberg, & Lee, 2008). Tesco offers a

number of benefits including paternity and maternity leaves, shift swaps, job shares, and career

breaks. The firm has share ownership scheme that has shared out £220, in March 2013. These

benefits and reward factors enable the organization to attract and retain the best talent. Tesco

has also developed various initiatives for empowering their employees. Developing mechanisms

through which employees can share their views with the management team is one of these

initiatives (Tesco Corporation, 2011). This initiative has enabled Tesco to enhance

innovativeness by harnessing diverse views of employees. It has also enhanced level of

employee motivation by developing a sense of ownership among employees. When employees

are given an opportunity to make a significant contribution towards the organization, they tend to

cultivate a strong feeling of ownership and belonging. Tesco has also established a relationship

of partnership with the employees’ union in order to make optimal use of the human resource

(Wilkinson, 2010). Many organizations are often unable to make optimal use of their employees

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because they adopt an adversarial relationship with unions. Consequently, these organizations

are engaged in regular conflicts with employees, which have a significant impact on productivity.

Example 2: Downsizing at Waitrose

Another human resource practice that has been influenced by the environmental context

is downsizing. Downsizing refers to deliberate actions by the organization to reduce the scale of

its operation in order to improve effectiveness and efficiency (Ritchner & Ahlstron, 2006). UK

supermarkets are opting to shift from large scale supermarket store to small scale local stores.

This trend is motivated by rapid expansion of online shopping within the UK market. According

to Bartholomeusz (2014), the growth of online shopping in the UK has stunned players within

the retail industry. Retailers are now focusing on developing IT platforms and delivery channels

associated with the online business model. This model favors the establishment of convenient

stores as opposed to mega supermarket. One of the supermarkets that have been affected

significantly by this trend is Waitrose.

According to Finch (2008), Waitrose was planning to downsize its operations by

establishing new half-size stores in market towns. The new stores would concentrate on

providing fresh food. Witrose move is intended to improve the organization efficiency in

delivering services to online shoppers. However, the move has a significant impact on the

organization’s human resource. It implies that the organization has to develop a lean and highly

fragmented workforce.

Conclusion

The supermarket sector is a critical component of the UK economy. The sector provides

employments to millions of people and makes significant contributions to the economy. This

paper has analyzed the current status of the UK supermarket status using the STEEPLE

framework. The analysis revealed the UK supermarkets are operating in high levels of

uncertainty brought about by diminishing spending power of consumers, globalization, growth of

online shopping, high inflation and unemployment, increased environment awareness and

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regulation, as well as, a stringent regulatory environment. This environment factors have led to

the development of various human resource practices including strategic human resource

management and downsizing.

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