Porter’s Five Forces

Figure x: Porter’s Five Forces

Competitive Rivalry

             The grocery retail market in the UK is saturated and heavily dominated by existing firms that
compete on lower prices with the top 5 accounting for 74.7% of the market share (Bedford, 2022a).
On the other hand, the premium segment is led by M&S and Waitrose which accounts for a total of
8% market share with 3.2% and 4.8% respectively (Bedford, 2022b; Bedford, 2022a). The
supermarket industry in the UK is mature with a CAGR of 1.2% as of 2022 and is valued at 211.9b
GBP in 2021 and expected to rise to 229.1b GBP by 2026 (IBIS 2022; IGD, 2021). Product
differentiation is difficult to achieve in the industry which encourages price competition and thus
creates extremely low margins for budget supermarkets (Eley, 2020). However, higher-end
supermarkets such as M&S may also compete by achieving retail differentiation through increased
product quality, additional services, and brand image to increase margins (Collins-Dodd & Lindley,
2003; MarketLine, 2021). Therefore, the level of competitive rivalry is high.

Threat of New Entrants

             Troy (2022) notes that the capital requirements needed for an SME supermarket is high,
with larger supermarkets require even higher initial costs. Brand image plays an important factor
among firms in the industry, hence competing against reputable incumbent firms such as M&S or
Tesco may prove challenging for newly established firms (Ahmed, 2021; Goldstein, 2020). In
addition, although technological advancements have simplified supply chains for supermarkets
(Vallandingham, 2018), larger supermarkets are able to achieve economies of scale by accessing an
extensive number of products from different suppliers worldwide (Martha, n.d.; M&S, n.d.).
Therefore, the threat of entry in the industry is low-medium.
 Threat of Substitutes

             Kennard (2021) has identified convenience stores, e-groceries, and farmers’ markets to be
substitutes of supermarkets. Nevertheless, they have relatively low influence due to lower levels of
market share. In addition, these substitutes have disadvantages such as limited product variety,
higher prices, and limited accessibility which may discourage switching. However, Boneham (2022)
has noted that as higher levels of inflation decrease disposable income, the rise of budget
supermarkets lowers switching costs, causing consumers to be inclined towards switching
supermarkets instead (Bailey, 2018; Radojev, 2022). Therefore, the threat of substitutes is medium.

Bargaining Power of Buyers

There are several large supermarkets in the industry alongside M&S that offer similar products
(Bedford, 2022a), enabling customers the ability to switch brands with ease. Differentiation of
products are rarely achieved in this market and thus induces higher levels of price sensitivity,
especially when substitutes are available, e.g. e-groceries (Erdem et al., 2002). Consequently,
customers may be unwilling to pay a premium for products with substitutes during an economic
crisis (Andreyeva & Brownell, 2010). However, customer segments are fragmented rather than
concentrated, affecting volume. Therefore, the bargaining power of buyers in this industry is
medium.

Bargaining Power of Suppliers

Due to the nature of agriculture, some products may be offered through certain supplier channels
exclusively, especially when certain safety standards need to be met (Boselie et al., 2003). However,
although the supply of certain products is subject to seasonality and geographical aspects, the
supermarket industry comprises of big players which deal in high volumes to achieve economies of
scale. M&S’ food supply chain sources from approximately 500 factories worldwide in 55 countries –
including 80% in the UK (M&S, n.d.). By sourcing the majority of their materials locally, this negates
the geographic limitations. Therefore, the bargaining power of suppliers is low.

The product life cycle mainly shows that budget retailers and e-groceries have extended the product
life cycle of M&S (this is derived from the porter’s five forces, where high rivalry is mainly caused by
budget retailers and e-groceries, placing it in the extension/growth stages. If these two factors did
not exist, the degree of rivalry wouldn’t be so high, hence placing M&S in the decline stage.)

The value net analysis shows that M&S needs to create strategies that help create synergies rather
than just focusing on competition. Specifically collaborating further and better with Ocado

References

Ahmed, M., (2021) An analysis of the impact of Brand Image on Consumer Purchase Behavior: The
Case of Lidl, Sweden. Luleå University of Technology. Department of Social Sciences, Technology and
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Andreyeva, T., Long, M.W. & Brownell, K.D. (2010) The Impact of Food Prices on Consumption: A
Systematic Review of Research on the Price Elasticity of Demand for Food. American Journal of
Public Health (1971), 100(2), 216–222.
Bailey, N., (2018) Tesco opens new discount chain: Aldi and Lidl will remain discount leaders.
MarketLine Analyst Insight

Boneham, I., (2022) UK’s cheapest supermarket 2021: Aldi, Lidl, Tesco, Waitrose and other
supermarkets compared on prices. Available at:
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Boselie, D., Henson, S. & Weatherspoon, D. (2003) Supermarket Procurement Practices in

Collins-Dodd, C. & Lindley, T. (2003) Store brands and retail differentiation: the influence of store
image and store brand attitude on store own brand perceptions. Journal of Retailing and Consumer
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Eley, J., (2020) Why UK supermarkets are not making super profits. Available at:
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the-united-kingdom-uk/

Emma Bedford (2022b) Grocery market share of Marks & Spencer (M&S) in the United Kingdom (UK)
from 2019 to 2021. Statista. Available at: https://www.statista.com/statistics/1135830/grocery-
market-share-of-marks-and-spencer-uk/

Erdem, T., Swait, J. & Louviere, J. (2002) The impact of brand credibility on consumer price
sensitivity. International Journal of Research in Marketing, 19(1), 1–19.

Goldstein, J., (2020) How To Build A Strong Retail Brand Image. Available at:
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strong-retail-brand-image/?sh=6b12dab94850 [Access date: 9th May, 2022]

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latest IGD market forecasts. Available at: https://www.igd.com/articles/article-viewer/t/uk-retail-
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Kennard, B., (2021). We still need alternatives to supermarkets – perhaps now more than ever.
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perhaps-now-more-than-ever/ [Access date: 9th May, 2022]

M&S, n.d. SUPPORTING OUR FOOD SUPPLY CHAIN. Available at:

MarketLine (2021) Food & Grocery Retail in the United Kingdom. MarketLine Industry Profile
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Radojev, H., (2022) Data: Four out of five consumers mull switching to discounters as cost of living
soars. Available online: https://www.retail-week.com/grocery/data-four-out-of-five-consumers-
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Troy, (2022) How To Start A Supermarket Business In Uk?. Available online:

Vallandingham, L.R. et al., (2018) Grocery retail supply chain planning and control: Impact of
consumer trends and enabling technologies. IFAC PapersOnLine, 51(11), pp.612–617.

Potentially useful resources

Graciola, A.P. et al., 2018. Does price sensitivity and price level influence store price image and
repurchase intention in retail markets? Journal of retailing and consumer services, 44, pp.201–213.