Greggs Bakery Chain’s Strategic Analysis

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Introduction

In today’s rapidly developing world, the food industry becomes one of the most demanded and valued markets. While people need fast solutions to meet their nutrition needs, they also understand that healthy options are essential. Greggs is a UK-based food retailer that provides bakery products, sandwiches and savouries. The company approaches 2500 outlets across the country and plans to open more shops to expand on the market (At a glance 2019) This paper aims to conduct a strategic analysis of Greggs in terms of Porter’s Five Forces framework to formulate relevant and evidence-based recommendations for its further development. Porter’s model 5 of Five Force is used to understand the structure of the industry, analyse its attractiveness in terms of profit, assess the competition and develop a business strategy.

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Strategic Analysis of Greggs, Recommendations and Limitations

While Porter’s Five Forces model consists of several components, it is possible to focus on those that are most important for Greggs. Morden (2016) emphasises that the bargaining power of suppliers increases if they are confident in the market and have the opportunity to choose companies to work with and influence their activities. Greggs recently transformed its business model from a bakery to a food-on-the-go format, designing a centralised approach to managing the outlets (At a glance 2019).

The bargaining power of suppliers can be considered low since the company built a strong supply chain to provide its customers with the highest quality products (Johnson et al., 2016). In particular, Greggs has multiple suppliers and remains open to new ways to improve its supply chain, which shows that it constantly looks for options to increase its efficiency. In 2018, record amounts were invested in launching several centres of excellence in Manchester, Newcastle and Leeds (At a glance 2019). The new manufacturing lines proved to be effective, which is confirmed by high production and service quality. Accordingly, the change of suppliers, their pricing and business positions are not likely to make a significant negative impact on Greggs.

The threat of new entrants implies the valuation of risks that are associated with the appearance of new competitors in the industry (Johnson et al., 2016). For Greggs, this power is low since the company has well-established distribution channels and economies of scale, which are hardly accessible for new entrants. The latter also would have such entrance barriers as strict licensing regulations, capital requirements and strong product differentiation (Cumming, 2016). In terms of the bargaining power of buyers, the chosen company encounters the sensitivity of consumers to prices, which means that the mentioned power is moderate. The economic volatility and the reluctance to spend more on food are two more factors. The quality of products is essential for customers, and considering that Greggs focuses on high quality, this power cannot be underestimated (Cumming, 2016). The high differentiation of products in the company keeps consumers loyal to the brand as they can make a choice, which prevents them from going to the competitors.

The threat of substitute products can also be regarded as high due to a great variety of attractive and affordable dining options that are available as a result of globalisation. For example, there are Chinese, Mexican, Italian and Japanese cuisines that offer food-on-the-go. While opening a new direction or launching an innovative product, it is necessary to study the following parameters of demand elasticity: consumer tendency to buy substitute products and the level of perception of product differentiation (Morden, 2016). Ultimately, the rivalry among the existing companies is high: in-store bakeries and craft bakeries tend to make increasing pressure on Greggs. However, there are a few critical competitors, including Pret a Manger, Finsbury Food Group and Grupo Bimbo, which points to the ability to thoroughly monitor their strategies. The competitors’ strategies are diverse, and each of them strives to find unique competitive advantages, which reinforces the rivalry (see Table 1).

Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitutes Existing Rivalry
Low Low Moderate High High
Proper distribution channels and economies of scale A strong supply chain Sensitivity of consumers to prices Globalisation In-store bakeries and craft bakeries
Strict licensing regulations and capital requirements Several centres of excellence Economic volatility Great product differentiation in the market Unique approaches to business

Table 1. The Analysis of Five Forces for Greggs.

Based on the above analysis of Greggs, it is possible to recommend the company apply Porter’s generic strategy of differentiation. It implies concentrating on product uniqueness and covering broad audiences (Zehir, Can & Karaboga, 2015). The company should make its products as exclusive as possible compared to competitors. Significant attention and funding should be given to the research and development of specific product features. For example, Greggs may consider delivering products directly to customers’ sites or elaborating on the design of products to meet and even exceed customers’ expectations. As it was emphasised by Porter, a company without a clear competition strategy loses market share, inefficiently manages investments and receives a low rate of return (Miles & Snow, 1978). Such a company loses buyers who are interested in an affordable price, so it is not able to offer them an acceptable price without loss of profit. More to the point, without a clear strategy, Greggs would not keep buyers interested in the specific properties of the product since it does not concentrate efforts on the development of differentiation or specialisation.

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As for limitations, the differentiation strategy requires the presence of unique product properties, a highly qualified workforce and the ability to create a reputation for high-quality products. In this connection, marketing along with researcher and development should be elaborated by Greggs as the key factors of success. The implementation of the differentiation strategy would also require the ability to protect the created competitive advantage of its products, which can be achieved by applying a sensemaking theory (Balogun, Bartunek & Do, 2015). The latter refers to the way middle managers interpret and signify the necessary change that is to be imposed top-down. In the case of Greggs that has thousands of outlets, each of them should have a responsible manager. In addition, several risk managers should be assigned to anticipate risks by timely reporting of occurring failures and sales statistics (Johnson et al., 2016). As a result, it is possible to expect that the rate of existing rivalry and the threat of substitutes would reduce.

Despite its limitations, Porter’s Five Forces model was selected due to its economist perspective on the critical analysis of companies. In comparison to a resource-based view, it promotes a comprehensive consideration of a form in the external environment and ensures that various aspects are taken into account (Kull, Mena & Korschun, 2016). Since the food market tends to change rapidly, such a framework helps in staying competent and competitive in the given field. Nevertheless, the resource-based view is useful for understanding the capabilities that are important to succeed at the moment, but they turn out to be insufficient or irrelevant to provide continuous progress (Johnson et al., 2016). Therefore, it is better to explore dynamic capabilities and make the business flexible to adjust to the changing market environment. The research limitations included the use of publicly-available information and academic sources, while the integration of Greggs’ reports and implicit data could make the analysis more detailed.

Conclusion

In conclusion, the strategic analysis of Greggs allows for stating that this company successfully operates in the UK food market, having several strong competitors and a well-designed supply chain structure. The low threat of new entrants to the market and bargaining power of suppliers is accompanied by the moderate bargaining power of consumers. To handle the existing rivalry and the threat of substitutes, it is recommended to focus on the differentiation strategy, investment in research and development, and risk mitigation.

Reference List

  1. Balogun, J., Bartunek, J. M. & Do, B. (2015) ‘Senior managers’ sensemaking and responses to strategic change’. Organization Science, 26(4), pp. 960-979.
  2. Balogun, J., Jarzabkowski, P. & Seidl, D. (2015) ‘Strategy as practice perspective’, in M.
  3. Cumming, E. (2016) ‘How Greggs conquered Britain: ‘nobody can quite believe how well it has done’”, The Guardian [Online] Web.
  4. At a glance [Online] (2019) Web.
  5. Johnson, G. et al. (2016) Exploring strategy: text and cases. New York: Pearson Education.
  6. Kull, A. J., Mena, J. A. & Korschun, D. (2016) ‘A resource-based view of stakeholder marketing’. Journal of Business Research, 69(12), pp. 5553-5560.
  7. Miles R. E. & Snow C. C. (1978) Organizational strategy, structure, and process. New York: McGraw-Hill.
  8. Morden, T. (2016) Principles of strategic management. New York: Routledge.
  9. Zehir, C., Can, E. & Karaboga, T. (2015) ‘Linking entrepreneurial orientation to firm performance: the role of differentiation strategy and innovation performance’. Procedia-Social and Behavioral Sciences, 210, pp. 358-367.

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