Giving economic circumstances over the last five years of how Tesco, Sainsbury and Morrison’s have coped

Introduction

In 2008, each and every business sector around the world faced a severe financial crisis due to the global recession. Many companies suffered huge financial loss due to the economic turmoil in the last five years. The retail sector was also affected due to the global recession.

The top retail giants of UK Tesco, Marks and Spencer,  Sainsbury etc also faced decline in their share prices due to  UK also faced a major brunt of the financial crisis (Hotten, 2008).  The economic turmoil affected the overall retail sector worldwide to a large extent, in fact one of the major grocery chain Great Atlantic & Pacific Tea Co become bankrupt due to the financial crisis and slow recovery from the same (Erman and Hummer, 2010). Many retail sectors like the financial and other retail sectors did job cutting in order to combat the financial turmoil. Bay trading one of the famous fashion retailer cut more than 1200 jobs and also closed many of its outlets. Cruise another fashion store also closed some of its store resulting into more job cuts (BBC News, 2009). Though the groceries giants like Tesco, Sainsbury and Morrison aimed at increasing the jobs but due to the closure of some of the grocery depots like Tesco who closed its Daventry’s depot of Fast way distribution has resulted some job loss (The Telegraph, 2008). In the last five years except 2008 and 2009 UK witnessed a positive GDP growth rate (BBC News, 2011).  At the end of 2009 UK recovered from the global recession which was caused due to the ripple effects of the failure of subprime loans and bankruptcy of the big financial institutions but can be hugely affected due to the predicted recession of 2012 which may happen mainly due to the debt crisis of the European countries (The Economic Times, 2011). The retail sector hugely depends on the buying behaviour of the customers. The buying behaviour depends upon the cultural, social and the income factors of the prospective customers. The overall buying behaviour of the customers was also affected due to the overall financial crisis. The main aim of this research is to analyse the performance of the three retail giants of United Kingdom during the financial crisis in the last five years and the actions taken by these companies in order to cope up with the economic turmoil.

Background

In the last five years the along with the other business sector, the retail sector also suffered the aftershocks of the global recession which was caused due to US mortgage crisis. Due to the financial crisis the consumer behaviour and the buying pattern also changed to some extent. As a result many retailers and the grocery stores changed their marketing and pricing strategies in order to combat with the economic down turn (Hruzova, 2009, p.41-42). Tesco, Sainsbury and Morrison are one of the major retail giants of UK. Tesco, Morrison and Sainsbury all of them provides number of products which ranges from electrical goods, electronic goods, home appraisals, groceries etc. Apart from luxury goods all of them offers necessity goods too which are purchased by consumers in any of the economic situation. In 2010 Tesco has decided to expand its operations in other parts of Europe and Asia by opening more stores in these parts as a measure to increase the profitability of the company (Wood, 2010). Along with Tesco, Sainsbury has also decided to expand its operations in other countries like China (Hall, 2010).

Research Problem

The global recession had a major impact on each and every sector of the world economy. The retail sector also suffered due to the change in the consumer behaviour and the change in the buying pattern of the customers. Many of the retail companies changes their pricing strategies in order to boost up the sales and maintain their profits. Asda, Tesco Sainsbury and Morrison waged a price war in order to position themselves during the financial crisis by providing heavy discounts on the products and services (The Telegraph, 2009). Tesco also started focusing into its other retail operations like maintaining saving accounts and selling credit cards in order to position it better than its counterparts during the recession (Hall, 2008).  The price wars intensified the competition where the bargain retailers like Lidl, Iceland and Aldi were successful in increasing its sales (Wallop, 2009). The extent to which the strategies influenced and improved the profitability of the companies will be studied in this paper.

Problem evidence

In 2009 and 2010, the retail sector witnessed declining profits and in some cases static profits. Many retail employees lost jobs due to recession (Roland Berger, 2009). Many steps were taken by the groceries to combat the financial crisis like Tesco and Asda gave huge discounts on the price of the products for a short period. During the Christmas times the wine bottles were sold at a half price. Most of the grocery store did price cutting to gain competitive advantage (Hickman, 2009).  Due to global recession in 2008-09 the consumers decreased the amount spend on shopping as result in 2008 the sales of retail industry of October declined by 0.5%. The furnishing segment suffered the most as the sales of the furniture in the retail sector declined by 13.2% from the previous year (JCK Online, 2008). Thus the overall global retail sector suffered from the financial crisis. Lower consumer spending was a major problem which was faced by almost every retailer during the recession period as a result many companies witnessed lower returns.

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Research Question

• What has happened to the supermarket over the last five years?
• How Tesco, Sainsbury and Morrison have tried to gain market position or improve their position to get more profits?
• How have this impacted on their profitability? ( ratio analysis)
• What has happened to the retail grocery trade over the last five years in particular to the large supermarket chains?
• How Tesco, Sainsbury and Morrison have tried to position themselves in order to maintain their market dominance?
• The impact of their chosen strategies on profitability and market share.

Objectives of the research

The objective or goal of any work should be ‘SMART’ that is they should be specific, measurable, achievable, and realistic and time bound (Meyer, n.d, p.1). Thus the objectives of the research are designed in such a way which are specific, can be measured and achieved, are not vague and time bound. The objective of this research is to analyse and compare the financial performance of Tesco, Sainsbury and Morrison in order to assess the ways in which they have coped with the economic crisis during the last five years. The research encompasses the different strategies taken by all the three companies during the global recession and impact of these strategies on the financial performance of the companies in the last five years. This research will try to identify the performance of the large supermarket chains and will aim at analysing the strategies taken by Tesco, Sainsbury and Morrison on maintain their market position and will also try to assess the impact of these strategies on the profitability and market share of these companies.

Why the study is important

This study will help to analyse and identify the techniques which were used to combat the financial crisis and assess the company among the three retail giants (Tesco, Sainsbury and Morison) to analyse which of the three companies performed best during the last five years. The study will help to analyse the strategies taken by the companies during the economic turmoil and impact of the various strategies and the techniques used by the companies on the overall financial performance of the companies that is Tesco, Sainsbury and Morrison financial performance over the last five years. This will help to identify the company or companies who have managed to combat the global recession successfully. This study will also help to identify and analyse the various strategies which can be used by the retail sector while any financial crisis to maintain their overall financial position and market position when the other sectors are incurring losses due to economic turmoil. The study will act as an eye opener for every investor or probable investor in the retail sector to identify and analyse the effects of the economic turmoil in the retail sector and how the effects have been managed by the retail giants. The study will also help to assess the performance of the three retailers segment wise and will help to identify the segment which was largest affected and which was least affected during and after the economic crisis in the last five years. Thus the research will not only help to assess the overall financial performance of Tesco, Sainsbury and Morison but will also act as a guide to identify the various ways in which the retail giants combat the economic turmoil.

Briefly explain how the rest of the dissertation is structured

The dissertation will be structured in seven parts or chapters.

• The first chapter is the introduction which includes the background study, research questions, research problems with evidence, objectives of the research and its importance.
• Chapter 2 will include the literature review which will include the study of the various literatures and previous researched work which are relevant for the research.
• Chapter 3 will contain the quantitative and qualitative methods to be used in the research that is the research methodology.
• The information related to the data collection and field work will be included in chapter 4.
• Chapter 5 will contain the analysis and the findings of the various data collected during the field work and data collection.
• Chapter 6 will contain a discussion on the findings of chapter 5.
• Chapter 7 will contain the conclusion of the research and the recommendations.

Research Project plan (high level plan that shows resources, timescales and tasks to be carried out to complete the study)

Required Resources

The research will require different data resources and intellectual data resources for conducting the research. Various magazines, newspaper and journal will be used as intellectual resource and the filled questionnaires, factsheets, annual reports and other authentic websites will be used for data resource.