The discussion of this paper entails an analysis of a fast growing company. The firm considered is 99p Store which is established within UK. Background information on the state of UK retail industry is given. In the analysis, the entry strategy adopted by the firm is discussed. In addition, an analysis of UK retail industry during its inception is together with the competitive environment are discussed. The key competitors to the firm are identified as Poundland and Lild.
The firm’s growth gives an illustration of how the firm has managed to grow in its operation during the period ranging from 2001-2009. This is conducted by analyzing the external environment through utilization of the PESTLE model. The firm’s financial performance during its growth phase is outlined.
A Strategic analysis of the firm’s internal environment is conducted by considering the firm’s mission statement, human resource and ownership. Internal analysis is also conducting a SWOT analysis to determine its sustainability. The firm’s sustainability is also conducted by evaluating its business model. Finally, the future of the firm is analyzed by considering the strategies that the firm should adopt. Some of these strategies worth of considering include the differentiation and leadership strategies.
In the recent past, business environment has undergone rampant growth. This results form increased incorporation of the concept of entrepreneurship by investors. According to Drucker (2008, Para 9), entrepreneurship entails intelligently responding to change occurring within the environment. The thrift within the entrepreneurs enables them to exploit the opportunities presented more effectively. One of the UK economic sectors which have witnessed rampant transformation is the retailing industry. This has resulted from a high rate with which investors are venturing the industry. The discussion of this paper entails an analysis of a fast growing company.
99 Stores Limited is a private limited company which was established in 2001 with their operations being mainly in UK. The firm’s headquarters are located at Northants. 99p Stores were founded by Nadir Lalani. In venturing into the UK retail industry, 99p Store Limited started from the scratch. This was conducted by effective selection of the niche market. According to Sage Business Solution (2009, p. 2), effective selection of a niche market plays a significant role in a firm’s expansion process. In their operation, the firms deal with a wide variety of consumer goods. According to Vodat International Limited (2009, para.2), by June 2009, the various stores of 99 Stores Limited boasted of over 3500 production lines. There are various products that the firm deals in and they include batteries, stationeries, car care products, baby care products confectioneries, games and toys. In addition, the firm also deals with beauty, health and groceries. The firm’s grocery products are branded Deli Fresh. The grocery section was introduced in 2007. Initially, the firm’s name was Whistlestop Discount Stores. However, the firm’s name was changed to 99p Stores in 2005.
During its establishment, UK retail market was not saturated. This presented an opportunity for Lalani to seize the opportunity. In addition, the concept of discount retailing was not widely adopted by entrepreneurs in their operation. During its inception, Woolsworth Company was undergoing financial constraints which culminated into their collapse. As a result, Lalani was able to acquire most of the premises which were initially occupied by Woolworth. For instance, Lalani acquired fifteen of these stores. This reduced the cost of their establishment.
Changes in competitive environment
Increase in the number of new investors into UK retail industry is posing a threat to the operation of the firm. A large number of investors are establishing discount stores due to the high level of profitability associated with the industry. As a result, the industry is becoming more and more concentrated. Concentration in an industry arises as large firm continue to expand their operation and the country incorporates the concept of retailing. According to 99p Stores (2008, para. 6), value retailing is amongst the UK retail sub sector which is undergoing a fast growth. As a result, the intensity of competition is very high. However, 99p Stores have managed to develop a competitive edge in dealing with competition. Some of the firms which pose price competition to the firm’s operation include Poundland and Lild.
The competitive environment has played a significant role in the establishment and growth of 99p Store. For example, the initial idea to start 99p Stores resulted from identification of a similar business concept which was adopted by Poundland.
In its operation, 99p Stores are faced with intense competition from other firms within the retail industry. The key competitors to the firm include Poundland. This results from the fact that Poundland has adopted the same business strategy as that of 99p Store. Poundland has adopted the concept to discount store and deals with a wide range of merchandise for 1 pound. By setting a price point of 1 pound for its products, Poundland has managed to attain significant popularity within Europe. This means that 99p Stores is challenged in relation to pricing. Poundland has a well established distributional channel with 261 stores. In addition, 99p Store is faced with intense competition from Lidl which also merchandises an assortment of products at a low price. In addition, Lidl has integrated the concept of internet marketing in its operation (Rubin, 2010, para. 1-5).
According to Phillip (2009, Para. 3), acquisition of Woolworths Group stores culminated into an increment in the firm’s turnover to 250 million pounds. Through acquisition and takeover strategy, a firm is able to overcome difficulties associated with acquiring resources necessary to set up the firm (Hitt, Ireland, Camp & Sexton, 2002, p.106).
Key competencies required
In order to succeed in the UK retail industry, it is paramount for 99p Store to integrate the concept of product innovation. This will enable the firm to improve on the quality of the products it deals with. As a result, consumers will be able to attain a level of satisfaction. In addition, the firm should consider integrating emerging electronic commerce concepts. One of these concepts relates to online marketing. As a result, the firm will be able to increase its sales revenue by accessing a wide range of customers.
99p Store growth 2001-2009
Considering the high rate of competition characterizing the UK retail industry, it is paramount for firms to formulate effective operating strategies aimed at maximizing their profitability. Despite the 2007 financial downturn, UK retail industry witnessed a growth with a margin of 60%. However, management teams of these firms should appreciate the importance of formulating operating strategies. One of these strategies entails conducting effective business expansion. Pitelis and Penrose (2009, p.40) asserts that business expansion is not automatic but entails comprehensive planning so as to attain their profit maximization objective.
Since its inception in 2001, the firm has undergone rampant growth. This is evident from the fact that the firm has established a number of stores within different regions in UK. The high growth rate has resulted from the thrift in the management team in implementing expansion strategy. In addition, the firm’s stakeholders have been committed in ensuring that the firm succeeds within its domestic and international market as a going concern entity. It was expected that by the end of its 2009/ 2010 financial year, 48 more stores would be opened making the total number of stores in UK to be 120 (Harrison, 2009, para. 1-3). For example, Barclays Ventures and Lloyds TSB which are shareholders within the firm funded 99p Store expansion programme with 8 million pounds. The expansion programme entailed opening 45 new stores within a period of 20 months. Increased support of the firm by its shareholders results from the fact that the firm has a superior market position (Barclays Venture, 2006, para. 1-4).
The high rate of expansion experienced by the firm has culminated into an increment in the firm’s annual profitability. This is due to the fact that the firm has been able to sell to a wide number of customers. According to 99p Stores (2008, para. 4), the firm’s expansion has increased the firm’s scale of operation. In addition, the firm has been able to attain economies of scale. As a result, the benefits resulting from economies of large scale operation enables the firm to set the price of its products at a relatively low price (Pitelis & Penrose, 2009, p.78). The ultimate effect is that the firm is able to attract individual customers of different purchasing power.
Findings of a survey conducted by the firm revealed its weekly customer base to be 600, 000. The firms’ customers are of different economic status. The study revealed some of these customers to be solicitors, accountants, doctors and stockbrokers. In the recent past, the firm has witnessed an increment in the number of it AB social grade customers. These are customers whose rank is high within the society. According to a report by PriceWaterHouseCoopers Limited (2010, para. 1), approximately 50% of consumers from AB social class made their purchases from discount stores such as 99p Store during the financial crisis. The firm’s large scale operation enables it to reach a large number of customers hence its rapid growth rate.
During the 2009 financial year, the firm’s sales revenue increased form 94 million pounds to 113 million pounds. In addition, the firm’s profit before tax increased from 142, 924 pounds to 333, 348 pounds while Earning Before Interest Depreciation and Tax (EBITDA) increased to 3.2 million pounds from 2.7 million pounds. According to Harrison (2009, para. 8), the firm took advantage of the economic crisis to market its products. This was made possible by the firm’s low pricing strategy. Table below gives an illustration of the changes in the firm’s level of profit over the past three years.
|Financial year||Turn over in million £||Gross profit in million £||Profit or loss before tax in million £|
From the table above, it is evident that the firm has undergone a rampant growth in its sales revenue for the past three years.
From the graph above, it is evident that the firm has undergone rampant growth from 2003 to 2009. A high growth rate in the number of stores established was witnessed during the period ranging from November 2008 to May 2009. During this period, the number of stores doubled from 60 to 120.
Firms in different economic sectors are affected by the external environment in which they operate. Apart from competition, other external factors that influences the efficiency with which a firm operates includes political, economic, social, technological and legal environment. The UK external environments have played a significant role towards the high growth rate of 99p Stores.
The UK political environment has been very stable over the years. This has enhanced the ease with which local and foreign investors venture into the industry. In addition, the government has formulated a legislation aimed at supporting small and medium enterprises.
UK has witnessed rampant economic growth during the period ranging from 2001-2009. The country ranks the 5th across the world in relation to Gross Domestic Product (GDP). The country’s economic growth has culminated into an improvement in the level employment. As a result; more jobs have been created in different economic sectors. For example, during the period ranging from 2001-2006,a large number of jobs were created in health, public administration and health. The ultimate effect has been an improvement in consumers’ disposable income and hence their purchasing power (General overview of UK economy, 2008, para.1-2).
The country’s rate of economic growth was affected by the financial crisis which began in 2007. The graph below gives an illustration of the trend in the UK economy. From the table, it is evident that the financial crisis resulted into a decline in the country’s economic performance. 99p Store capitalized on the economic crisis in its growth strategy. However, the financial crisis also contributed towards the firm’s success during the last 3 years. This is due to the fact that a large proportion of individual consumers considered shopping at discount stores due to the financial constraints.
In addition, the financial crisis had adverse effect on the property market. According to (Walayat, 2009, para.1), the prices of houses in the UK property market have declined with approximately 20%. This has made securing commercial premises cheaper for investors. This trend is expected to continue until 2012 as illustrated by the graph below. This presents an opportunity for the firm to acquire more stores within the UK market.
Over the past decade, there has been a shift in individual consumption pattern especially in relation to food products. This is evident from the fact that a large proportion of consumers are becoming more health conscious (Sax, 2008, p.-3). As a result, the consumers are more concerned about the quality of the products in an effort to maximize the value attained from the consumption. This shift in lifestyle has played a significant role towards the success of 99p Stores. This is due to the fact that the firm is committed towards provision of high quality products. As a result, 99p Stores have managed to develop a positive consumer perception hence attracting a large proportion of consumers as their confidence towards the firm increases.
A high rate of transformation has been experienced within the technological environment. This has resulted from the high rate of technological innovation. One such innovation relates to Information Communication Technology (ICT) such as emergence of electronic commerce. A high growth in ICT has been witnessed during the period ranging from 2000 to 2010.These innovations have also affected the retailing industry. One of the technologies which have greatly affected the retail industry is the incorporation of point of sale (POS). This technology enables effective recording of sales transactions. In addition, Electronic Data Interchange (EDI) has also resulted into an increment in the rate of technological innovation. In an effort to capitalize on the technological changes, the firm’s management team has replaced the old retailing network with more current retailing network. 99p Stores have achieved this by partnering with Vodat which is an expert in provision of retailing technology (99p Store, 2008, para.10).
The UK government has recognized the significant role the entrepreneurship plays towards attaining its economic growth. As a result, the government has formulated effective laws to protect entrepreneurs and their start up business enterprises (Cymru, n.d, p.3). One of the key legislations that has supported entrepreneurship relate to patenting. This is due to the fact that entrepreneurship is characterized by a high rate of innovation. According to TrendChart report (2006, p.13), UK had the largest number of small and medium enterprises which apply for intellectual property rights amongst British countries. The UK government is assisting SMEs to apply for patent. Through patenting, entrepreneurs can be able to conduct effective product invention and innovation. This is arises from the fact that patenting provides sufficient protection for the entrepreneurs products against illegal counterfeit products in their marketing process.
The UK government formulated a taxation legislation which entailed taxing landlords of commercial property who were reluctant to stock their premises or lease off their premises to discount shops. As a result, it was easy for 99p Store to secure operational premises. The taxation legislation prompted landlords to be more responsive to in leasing off their commercial stores.
Strategic analysis of internal environment
99p Store is committed at ensuring that consumers attain a high level of satisfaction by consuming the products that it supplies. To attain this, the firm has integrated the concept of quality control within its entire supply chain. In addition, the firm’s management team is committed at ensuring that its customers obtain attain convenience in their consumption process. This is attained through provision of an assortment of products.
99p Store operates as a private limited company. Currently, Nadir Lalani is the firm’s Chief Executive Officer (CEO), while Gordon Brown is the firm’s chairman.
Being a private limited company, the firm’s capital structure is composed of shareholders. As the founder, Nadir Lalani holds 51% of the total shares. The other shares are held by Barclays Venture, Nadir Lalani family and friends. These shareholders hold 24% and 25% of the firm’s shares respectively.
Currently, the firm has a total of 3000 employees who work within its 129 stores. In its expansion strategy, the firm’s management team intends to increase its human resource to 5000 employees.
To cope with the competition presented by these firms, 99p Store’s management team have incorporated the concept of cannibalism. This strategy entails establishing a firm where its competitors operate so as to decrease their sales volume. The main objective of business cannibalism is to reduce the competitors’ strength. According to Morton (2009, para.1-4), Poole Company was forced to close down their shortly after it was opened due to direct competition that resulted from establishment of 99p Store. This is due to the fact that a large percentage of customers were rushing to shop at 99p Store which was offering the same type of products at a low price. Similarly, Petersfield Company experienced the same threat of closure as a result of its sales declining by 60%. Due to the firm’s business strategy, its competitor experience difficulty in an effort to operate profitably.
Despite the intensity of competition that is characterizing the UK retail industry, the consumers have managed to develop a positive perception towards the firm. This is due to the fact that the firm provides products which are of high value.
According to Tatum (2010, para. 1-3), development of a business model is a key element in the process of a firm attaining a high competitive advantage. This is due to the fact that the business model defines a firm’s operation strategy. Tatum (2010, para.1) asserts that the components of business model describes the firms operations such as its corporate structure, marketing procedures and operating procedures. Both internal and external environments should be considered in the process of developing the business model. Some of the internal components of a business model relate to operations such production and manufacturing process (Hitt, 2002, p.89). Through the business model, the firm’s management team is able to formulate an effective pricing strategy. As a result, the firm is able to operate in a profitable manner.
In its operation, 99p Stores management team has managed to develop and implement a comprehensive business model. This has enabled the firm to develop and maintain sustainable competitive advantage. The firm’s management team has adopted discount and value retailing method. Discount retailing entails setting the price of its products at a relatively low price point compared to its competitors. According to Packaged Facts (1990, p.1995), value retailing entails selling products characterized by high quality and a strong brand at a retail price lower than 25% of the existing retail price. Since the start of the current global financial crises, discount stores have become very popular amongst individual consumers in UK. This results from the price sensitive nature of the consumers. The financial crisis resulted into a decline of the consumer’s purchasing power. However, the consumers demand to maximize their utility and hence the need to maximize their consumption.
For the eight years that the firm has been in operation, it has managed to develop a high market operation. The table below gives an illustration of the firm’s strengths, weaknesses, opportunities and threats.
-Brand recognition. – The firm’s products are
widely recognized within the local market.
-Competitive pricing due to low economies of
scale and outsourcing.
-Strong financial base which enables the firm
to conduct effective expansion.
-Positive public image.
-Incorporation of retail technology provided by Vodat (99p Store, 2008, para. 8)
-Poor quality control system. The firm was fined for selling pans whose quality was not well controlled.
– Ineffectiveness in providing product information to consumers. The firm was fined for selling products with no instructions that the consumers could understand (Royal Kingston, 2005, para. 1-5).
– Product line extension.
-Changes in consumers purchasing pattern.
-Increase in the intensity of competition from
new entrants. The firm is faced by intense competition from large supermarkets such as ASDA, Sainsbury Whole Foods Market, Morrison, and Waitrose. These firms hold 75%of the total UK market.
– Increment in the number of substitute products.
In its operation, 99P Stores is focused at attaining a high competitive advantage. To achieve this, the firm’s management teams have incorporated the concept of innovation in an effort to grow. Hitt et al (2002, p.79), asserts that effective formulation of strategy is paramount. As a result, various dimensions of operation strategies have been considered. The table below gives an illustration of Ansoff Matrix depicting the major operating strategies that have been implemented by the firm.
|Existing product||New product|
|Existing markets||Market penetration||Product development|
|New Markets||Market development||Diversification|
Through the market penetration strategy, the firm intends to attain growth in relation to its existing products. As a result, the firm will enhance its market share. In addition the firm’s management team has integrated the concept of market development by extending the market for the products it deals with into new market segments. This will culminate into an increment in the firm’s market share. In addition, the firm has incorporated the concept of innovation. This enables the firm to develop new products especially food products which it sells to the existing market. Through diversification strategy, the firm is able to sell its products into other market.
Porter’s five forces
According to Ehmke, Fulton, Akridge, Erickson and Linton (2004, p.1), the operations of a firm are affected by the firms industry structure. Ehmke et al (2004, p.1), asserts that understanding the industry structure is important in the process of developing operational strategies. According to Smit (2000, p.102), Michael Porter outlined five forces which affects the operation of a given industry. These include buyer power, supplier power, rivalry, threat of substitute and new entrants.
UK retail industry has witnessed an increment in the number of investors who are venturing into the industry. This results from the fact that the industry is very lucrative in terms of profitability. In addition, the industry is characterized by minimal barriers to entry. The cost involved in venturing into the industry is relatively low while at the same time it is easy for new entrants to access the distribution channel.
In order to attain a high competitive advantage; firms the independent retailers are forming chain stores in an effort to attain a high market position. As a result, the degree of rivalry within the industry has been on the increase in an effort of firms in the industry to attain a relatively high market share.
The retailers are also developing a good relationship with their suppliers in order to develop high quality products which meet the customers’ product requirement. To ensure high quality of the products, 99p Stores management team maintains strict control of their suppliers making their supplier power to be relatively low. Supplier power is defined as the degree to which suppliers influence the price of the products upwards (Tutor2U, n.d, para. 8).
According to Tutor2u (n.d, para. 11), buyer power refers to the capacity of buyers to drive the price of products and services downwards. Similarly, buyers bargaining power has been increasing in the recent past. This results from the shift in consumers demand as they demand products and services of high quality at bargain prices. As a result, retailers are being pressurized to be honest in supplying their products.
Increment in the number of firms within the industry has also resulted into an increment in the buyer power. This arises from the fact that investors are conducting intense innovation and hence the emergence of a wide range of substitute products. In addition, firms in the retail industry do not specialize with a single product. However, these firms have integrated the concept of product diversity. As a result, the buyers switching cost is minimized.
Future for 99P Store
Despite the intensity of competition characterizing the UK retail industry, there is a high probability of the firm attaining a high market share both in its domestic and foreign market. This will result from formulation of defensive operational strategies. As a result, it will be possible for the firm to cope with competition hence generating a high return on investment. Some of the strategies that the firm should consider relate to cost leadership, differentiation and focus strategy.
Cost leadership strategy
In order for 99p Stores to thrive into the future, it is paramount that the firm to consider being a low cost leader. This means that the firm’s management team should be committed at formulating strategies aimed at keeping the price of its products at a relatively low level compared to its competitors (Porters generic strategies, 2007, para. 4). However, lowering the cost should not compromise the quality of its products. This means that it is paramount for the management team to emphasize on its value chain. There is a high probability of 99p Store attaining a high competitive advantage in the future in relation to cost leadership. This is due to the fact that the firm is aggressively pursuing expansion strategy and hence the efficiency with which the firm will attain economies of scale.
The future of the firm also lays in the effectiveness with which the firm will integrate the concept of differentiation. This will entail selling ensuring that the products that the firm deals with are unique and of high quality. In order to be effective in its differentiation strategy, a comprehensive consumer market research should be conducted. This will enable the firm to understand the consumers products needs more effectively. As a result, the firm will be able to conduct effective product development and product line extension. The ultimate result is that the firm will be able to develop sustainable competitive advantage. Sustainable competitive advantage refers to the ability of the firm to implement unique and value creating operation strategy. This is achieved through integration of the firm’s internal resources and capabilities (Kotelnikov, 2001, para.1).
99p Store has managed to attain a high market position within the UK domestic market. This has been achieved through effective formulation and implementation of operation strategies. Through integration of effective entrepreneurial strategies, the firm will be able to attain a sustainable competitive advantage. The Store has managed to implement effective business model. The ultimate effect has been a fast growth rate that is currently being experienced by the firm. In addition, the firm has managed to be effective in its operation due to the commitment of the management team. In order to improve its competitive advantage, it is paramount for the management team to consider enhancing its discount and value retailing strategy. This can be attained through incorporation of diverse entrepreneurial strategies such as differentiation and cost leadership strategies. As a result, the firm will be able to provide high quality and affordable products that meet customer demands.
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