Analyzing Profitability in Supermarket Industry
Added on 2020-01-07
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Analysis of profitability margin of home bargain ascompared to their competitors in this presentmarket. Contents1.Introduction.................................................................................................................................22.LITERATURE REVIEW............................................................................................................32.1.The factors contributing in profitability of retail industry...........................................31
2.2.The key factors that enhance profitability of supermarket in today's competitiveera.63.RESEARCH AIMS/ OBJECTIVES...........................................................................................84.RESEARCH METHODOLOGY................................................................................................84.1.Research-philosophy:.......................................................................................................84.2.Research design.................................................................................................................94.3.Research approach...........................................................................................................94.4.Research Type...................................................................................................................94.5.Data collection method...................................................................................................104.6.Data analysis...................................................................................................................104.7.Sampling..........................................................................................................................104.8.Validity and reliability....................................................................................................114.9.Ethical consideration......................................................................................................114.10.Deliverables.....................................................................................................................124.11.Significance.....................................................................................................................124.12.Required Resources........................................................................................................125.Gannt chart................................................................................................................................126.References.................................................................................................................................141.INTRODUCTIONAt present the retail sector is the highest growing which alone contributed £340 billion worth ofretail sales to the economy in year 2015 (About Home Bargainsyear ). Further, it generatesemployment opportunity to around 2.8 million (Retail sales in UK, 2016). Thereafter, in UKretail sector contributes to 5% of total GDP(About Home Bargains, 2016). Due to availability ofimmense growth and development opportunities the industry has attracted competition. vague2
Home Bargains is well established retail company that owns and operates chain of discountstores providing range of general merchandise products, grocery etc. Home Bargains wasfounded in 1976 in England (About Home Bargains, 2016). The brand is providing its effectiveservices within UK. In 2013; Home Bargains published a record breaking turnover of £1 billion(Retail sales in UK, 2016). The brand have total 370 stores across the nation that provideeffective and top quality services to wide range of customers. The UK retail market is facingtough competition at present with presence of giant companies like, Tesco, Sainsbury, Morrison,Asda etc (Anderson, Fornell and Lehmann, 2004). In order to stay competitive and maintaintheir proficiency, companies are taking various actions like, introduction of new techniques,improved marketing, use of sales tactics etc. There is increase in use of online channels for salesand marketing. Presently, 12% proportion of sales are made online (Retail sales in UK, 2016). 2.LITERATURE REVIEWThe concept of profitability for supermarket industryAccording to the views of Rishika, Janakiraman and Bezawada, (2013) profitability means theoperating efficiency oforganization. It refers to competence of business to make profits onsales. In the opinion of Anderson, Fornell and Rust, (2007) profitability is the main objective ofall the organization. In the absence of profitability the organization will not be able to sustain inthe long run. Further, profit is term that describes what is remaining of revenue a businessgenerates after it pays all expenditure directly associated to the generation of the profit. In thewords of Yu, Ramanathan and Nath, (2014) profitability is ability of organization to use itsresources to generate revenue in excess of its expenses. In accordance to the report, publishedby Centre for Digital Financial Inclusion, the average profit margin for the supermarket industrywas 1.9% in 2010. The studies show that supermarket business is low margin sector with thenormal income margin for supermarket typically varying from 1-2%. Hirsch and Hartmann,(2014) has argued that natural, organic and gourmet food market relish higher averages from3.5-6% (Retail sales in UK, 2016). In the opinion of Anderson, Fornell and Lehmann, (2004)supermarket industry is extremely fragmented. In order to improve the profitability,supermarkets are focusing more on customer satisfaction, improved convenience througheffective services, intense marketing etc. 2.1.The factors contributing in profitability of retail industry According to Akçay, Boyacı and Zhang, (2013) profitability is the efficiency of a business toearn a income. A profit is what is left of the revenue a business generates after it repays all3
expenses directly associated to the generation of the revenue like, manufacturing a product andother expenses associated to the conduct of the business functions. There are ranges of factorsthat impact the profit of the retail industry. As per the views of Christine, Devie and Tarigan,2015 cost of goods sold is main component in long term profitability. It further takes intoconsideration direct and indirect cost that finally impacts bottom line profits. A retailer identifythese cost by involving the worth of inventory at beginning of given duration , adding in newpurchases made during the duration and also computing labour and shipping cost. By reducingthe unnecessary cost and increasing economies of scale, company can improve its profit margin.McNeill,2012 state that mark up decision also play strong role in contributing towards theprofitability of retail industry. Markup is amount a seller can charge in addition to the actual costof delivering the product to market so as to make a profit. Markup is important part of businesscompetitive strategy as it requires to ascertain the manner in which entity cover present cost butalso permits for future contingency (Gouldson and Sullivan, 2014). IN addition to this aspect Schiraldi, Smith and Takahashi, 2012 also stated that price is leadingfactor that impact of buyer’s decision on whether to purchase a product. Therefore, retailerdecides whether they must charge competitive price, premium or low. Any mistake in chargingprice can result into buyer shift to rival product. Therefore, retailer must charge price that ismust high enough to cover their cost but not so high that it pulls back the prospective customers.The price is used as tool by retailer whereby they assure maximum overall profit for themerchandise even it means less profit per individual item sold (Wrigley and Lowe, 2014).Thereafter, profitability in retail industry is also determined by the efficiency of company tokeep minimum cost of operations. In order to keep minimum cost of functioning, entity can usevarious tactics like, bargaining from suppliers; outsource certain function if they can be cheaplyperformed by other entity. Thereafter, inventory and distribution is another factor thatcontributes towards the profitability of business. As per the surveys of Forbes, in 2011 there is40% hike in online sales while in bricks and mortar stores sales increased only 5.3%(Profitability in Supermarket industry. 2016). Therefore, retailers are required to use improvedand upgraded online techniques for enhancing its profit margin. This will also help in increasingbrand love among customers as retailer tends to increase convenience from buyers. Ellram, LaLonde and Weber,( 2013)states that sales and service strategies is another factor that contributetowards profitability. Retailers are offering similar products may differentiate themselvesthrough customer service strategies purpose at influencing customer’s loyalty and repetitivesales like, free shipping etc. The effective service strategies play a significant role in improving4
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