Contemporary Business Environment

This report analyzes the market structure of the UK's grocery industry and the economic factors affecting organizations. It also discusses the impact of Brexit and COVID-19 on businesses. Recommendations are provided for Penny Supermarket's entry into the UK market.

Contemporary Business
Environment

Table of Contents
INTRODUCTION ..........................................................................................................................3
DISCUSSION AND ANALYSIS...................................................................................................3
Various Market structure.............................................................................................................3
The market structure of UK's grocery industry...........................................................................4
Economic Factor of UK and its affect on organisation...............................................................4
Impact of BREXIT on organisation............................................................................................6
Impact of COVID-19 on organisation.........................................................................................7
CONCLUSION................................................................................................................................9
RECOMMENDATIONS.................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
The business environment which have a vast and competitive market keeps on changing
in a fast pace requires its owner to understand the changes. It is also required that these
businesses are eligible to understand requirements and developments which will help them to
grab the opportunities as per the fast responses of environment. The following report is
conducted on Penny supermarket which is a discounted grocery store based in Germany. There
are 3550 stores of the company throughout the world (Amankwah-Amoah, Osabutey and
Egbetokun, 2018). The company was founded in 1973. the report analyses the market structure
of United Kingdom where Penny supermarket wants to establish their business. The market
structure of grocery market in UK is discussed along with various economic factors including
demand and supply, inflation rates, foreign exchange, interests and so on. Effects of BREXIT on
market and that the company might face in future are also discussed. At the end of discussion
some recommendations are provided for Penny supermarket that will help them to establish
business in United Kingdom.
DISCUSSION AND ANALYSIS
Various Market structure
Market structure refers to the description of various economics and characteristics of a
market. This also include the number of firms, their market share and the level of competition in
market. It will help in distinguishing the level of competitiveness between various firms in a
market. When taking the market structure of United Kingdom into account it is considered to be
highly centralized. The majority operations are taking place from the capital that is in London. In
United Kingdom the principal sector is service sector and it forms the major part of GDP. Major
driver is financial sector in London which is also largest financial sector throughout the world.
Other than this some major industries include pharmaceuticals, gas and oil production,
construction and agriculture. The aerospace industry of United Kingdom is also ranked between
2nd and 3rd throughout the world. Other than this, pharmaceuticals development and research of
united Kingdom is the third largest throughout the world. Tourism sector in United Kingdom is
making huge money for economy (Hamilton and Webster, 2018). There are a number of visitors
coming to UK for travel and tourism. However, due to the pandemic of COVID-19 a downfall on
all the sectors is seen and specially on travel and tourism which is facing huge losses.

The market structure of UK's grocery industry
The market structure of grocery industry in United Kingdom is considered to be an
oligopoly market. An oligopoly market structure is the market which consists of small number of
firms and the concentration ratio is always with the largest firms. There are a few firms that are
accelerating the grocery market in united Kingdom. Tesco and Sainsbury's are two of the largest
organisations in retail sector in United Kingdom. ASDA also provides huge competition to these
two organisations in the market. Before introduction of a number of discounted stores there were
4 big supermarkets in United Kingdom namely Tesco, Morrisons, Sainsbury's and ASDA.The
big four in grocery market in United Kingdom own a total of 73.2% of shares of grocery market
in 2015. The shift of consumers were seen after the introduction of BREXIT as consumers
moved their interests towards more cheap products that were provided by supermarkets like Aldi
and Lidl. The price wars between all these supermarkets in industry have led to huge price wars
between these countries. There were also a number of acquisitions done in market in order to
increase market shares where Aldi overtook Co-operative and Lidl overtook Waitrose.
The grocery market in United Kingdom was measured to be about 190 billion pounds in
2018. the growth in this market is seen after 2004 (Hans, Fernandes and Crasta, 2019). however
in between 2013 and 2016 this growth has slowed down but it is again accelerating in these
recent years. Online channels of grocery sector are now generating more revenues as compared
to the traditional way of buying and selling goods. Penny supermarket can set their foot in UK's
supermarkets just like Aldi. It was also a German company which understood the rapid growth
and opportunity in United Kingdom's grocery store.
Economic Factor of UK and its affect on organisation
Demand and Supply of food and groceries in UK are are majorly seasonal. Along with
these food are also preserved, bottled and frozen in order to meet the future demands. Also due
to the COVID- 19 demand and supply of food and groceries in UK have increased drastically.
This have led to more investors investing in supermarkets in order to meet the requirement of
supply as per the demands. It is a great benefit for Penny supermarket as the demand for
groceries and supermarkets in UK is increasing. They can enter the market and fulfil the
requirements of supply (Geppert and Pastuh, 2017). It will help the company to grow and earn
profits as soon as they enter the market.

Income Level of United Kingdom is very unequal as compared to other developed
countries. Major households in United Kingdom are those which fall below the mean disposable
income. These are including wages and various cash benefits (Masalimova and Shaidullina,
2017). Due to this uneven distribution of income amongst people it is a great opportunity for
Penny supermarket to enter United Kingdom and provide their products to the consumers with
low income. The products provided by Penny supermarkets are discounted products that are
cheap in prices. These are effectively preferred by the consumers with low income and budget.
Starting a business in United Kingdom can therefore be beneficial for Penny supermarket.
Inflation Rate in supermarkets have hit highest marks due to the pandemic caused by
corona virus. The demand for grocery items have spiked tremendously which could not be
managed by the supply available in market. This have led to increase in the prices of these
products. This proves that the need and de4mand of grocery markets in United Kingdom is high.
Also with the help of increasing inflation Penny Supermarket can achieve higher level of profits.
They require to fulfil the demand of consumers with their low priced goods which will be sold at
a inflated price.
For-ex rate is another factor that might effect retail sector. Consumer spending on
groceries is also a huge part of a company's economy. It is also an indicator to measure the
amount of consumer spending. A depreciation in the value will make exports cheaper whereas
for the firms that are importing raw materials often face higher cost while importing them.
According to this Penny supermarket will need to manage their imports and exports between
Germany and UK. They will need to plan their business as per the fluctuation in foreign
exchange rates.
Interest rate are economic factor that are affecting the buying behaviour of consumers in an
economy. Consumers who have to pay huge debts along with which they also need to pay the
interests rates face problems in using their income for spendings. However, the interest rates in
United Kingdom are not much (Kabalina, Zelenova and Reshetnikova, 2019). The Bank of
England is setting base rate for UK and the current rate is 0.1%. This is a favourable condition
for companies entering into UK market.
Taxes will also effect the functioning of Penny supermarket in United Kingdom. There
are a number of tariffs that are applied in the businesses from EU entering UK. Due to this
company will have to pay high amount of taxes to the government of United Kingdom. If the

company is unable to earn high revenues from the UK market they may subsequently go into
losses. There are also some restrictions on deductions of various interests for the foreign
companies which are operating in United Kingdom (Rezaee, 2020). This have some major
impacts on companies. Also Penny supermarket is dealing in food products that are processed,
semi processed and unprocessed. The tariffs on processed food are very high. Therefore taxes
will highly effect organisation as it sets up business in united Kingdom.
Recession will have major effects on Penny supermarkets. Due to the pandemic of
COVID-19 company is already facing problems. There are a number of people unemployed and
whose income are also depleting. Major people are moving towards cheap products. The
discounted stores are in trends as due to low income the spending power of people is also
depleting. It is required by Penny supermarkets to take advantage of their discounting policies.
They are supposed to introduce some more products that are on discount and providing benefits
to people. Thus, in this way when the economy in United Kingdom is hit by recession it will help
the organisation to gain the benefits and make sure that they are selling in huge quantities.
Employment Rates is an important factor in every economy that enables business to
understand the income level, living standards, spending level etc. of people in an economy. The
pandemic of COVID 19 have to a fall in employment rates of UK. A number of people n country
are now unemployed. This have led to decrease in the income level and their capacity to spend as
well. In such cases people go out looking for products that are cheap. Along with providing
cheap products Penny supermarket can effectively focus on the quality. As there are a number of
competitors for the company already present in market (Fascia, 2018). If the company is
specifically looking at various competitors they are providing discounted goods but the quality is
not up to mark. While providing cheap products Penny supermarket should also focus on quality
and this will help them to grow in market. Company will also employee workforce of country
which will help them to contribute towards society and due to low employment rate they can
easily attain workforce for their stores at reasonable prices.
Impact of BREXIT on organisation
The changes that are brought by BREXIT is certainly affecting the grocery store's in
country. This will also further impact the operations of Penny supermarket as they venture in
United Kingdom. The trade deals that are signed under BREXIT have the potential that will
allow the grocery stores to overhaul their supply chains. The effects of BREXIT on retail sector

are major as most of the food and drinks in country are imported from European Union. Some
other major effects that Penny Supermarket will have to face due to introduction of BREXIT
includes the increase in average tariffs which will now be 27% for food items that is higher than
that of non-food items which are 3-4% (Bogdan and Beata, 2018). These new undertakings will
also result in rise of costs. However, government can take decisions regarding reduction of tariffs
but this would not serve the purpose. The wholesalers as well as retailers in UK are already
entering into the period where uncertainty for them is heightened. Any other steps other than
applying for full customs will only result in increment of costs on the food supply chain. If
Penny supermarkets decides to enter into UK the increased costs due to BREXIT will be seen on
every stage of the supply chain. The retailers like penny supermarket are hit hard as the duties
that are imposed on processed goods are generally higher than that on semi-processed or
unprocessed goods. However, the wholesalers are to be effected less.
Being a discounter Penny supermarket will be highly impacted by tariffs burden raised
due to trading of dairy, meat, cereals and wines. Specific duties are imposed on the transactions
with lower value. This means that if any transaction is taking place between EU and UK then the
lower the amount of transaction is the higher tax burden it will have to bear. However there is no
broad approach on setting tariffs for food and drinks. As the tariffs on some of the MFN (Most
Favoured Nation) is 0% (Boone, Kurtz and Berston 2019). The German companies those were
already operating in United Kingdom have however deteriorated due to BREXIT effect. Only 1
out of 5 German companies are showing good results after the introduction of BREXIT. Other
companies functioning in UK are also assuming their business to deteriorate further due to the
impacts of BREXIT. Also a number of companies are thinking to relocate their investments from
United Kingdom which are to Germany and European Union countries. In this state setting up of
supermarket by Penny in United Kingdom is a tough job. BREXIT is representing great
uncertainty of business between UK and EU. The negative effects of this deal are already very
clear on a number of businesses. The German British trade is declining enormously due to the
BREXIT decision. The German economy is insecure and a number of companies are now either
redirecting or relocating their investments. Therefore, there are a number of factors that are to be
considered by Penny supermarket. Company can venture into UK's market but they need to make
huge revenues to balance all their tariffs with United Kingdom's system.

Impact of COVID-19 on organisation
Immediate impact
The pandemic of COVID-19 have have sufficiently set up growth for the supermarkets in
United Kingdom. The pandemic have effectively accelerated the impact on online markets.
Penny supermarket can successfully deal in online grocery selling in order to set up their
business in UK successfully (Lingeberzins, 2017). Also, people are now not sticking to huge
grocery stores but focusing on the one's which are convenient enough to go and get the groceries.
Therefore it is a great opportunity for Penny Supermarket to enter into British market at this
point of time as the people require grocery stores the most now.
However, due to the effect of COVID-19 it is necessarily required by the supermarkets to
make sure that the virus is out of their food environment. They are also required to follow the
guidelines of WHO which requires to take all the cleaning and sanitization measures, disinfect
all the surfaces, educate their staff about the virus and ways to protect themselves from it,
reinforce various protocols including physical distancing, improved security and hand washing.
These are some of the factors that are to be kept in mind by Penny supermarket as they are
entering in UK's grocery sector.
Future impact
When considering the future impact of COVID-19 on Penny Supermarket as it enters in
UK it can be said that the company can grow and prosper. Various economists have stated the
pandemic have shifted the behaviour of buyers to focus more upon various online channels. Also
the discounted stores are assumed to become the largest channels that will be used by consumers
sue to the rising unemployment in the economy (Reid, Varona and Rout, 2018). The online
market share is assumed to increase along with a rise in number of shoppers and huge order
sizes. There are a number of discounted stores that are expected to grow in future such as Aldi
and Lidl. Penny supermarket can efficiently set themselves as one of these discounted stores in
United Kingdom which are bound to grow due to the COVID-19 effects.
Penny Supermarkets can also gain profits from the situation if they are setting themselves
as a convenience supermarket for the consumers. The growth of convenience stores in coming
years is expected to be high. There are a number of shoppers that are looking to migrate to
different channels and stores. Penny supermarket can be that store and option for consumers in

United Kingdom. This will successfully help Penny supermarket to take benefits even from the
future effects of COVID-19.
CONCLUSION
With the help of above report it can be concluded that need for grocery markets in United
Kingdom can never settle. Also the market structure of country is providing a number of benefits
for new supermarkets to enter the market. However, there are some organisations that have the
major share of supermarkets in the country but with discounting policies and new innovations
some new entrants are providing them competition. The major economic factors such as inflation
rates, interest rates, employment rate income distribution etc. all are in favour of new grocery
markets in the economy. However there are some disadvantages that will be faced by company
due to the introduction of BREXIT. Penny supermarket will need to make sure that they are
conducting their business in such a way which enables them to successfully attain revenues that
are enough to pay off to the tariffs which are increased due to introduction of BREXIT. The
report also sums up the effects of COVID-19 on supermarkets in United Kingdom. The current
as well as future effects of the virus is discussed in detail. There is a future growth expected in
retail industry which is providing a great platform for Penny supermarket to grab the opportunity
and attain benefits.
RECOMMENDATIONS
Above report explains various factors of United Kingdom's market and structure of the
markets specifically in the retail sector. Analysis of market have been done with the help of
critical resources available. There are a number of suggestions that are discovered for Penny
supermarket which they need to follow while entering into United Kingdom's retail sector.
Below mentioned are some of the recommendations:
 The market of United Kingdom is culturally diverse. It is required by Penny supermarket
to make sure that they are not underestimating the diversity in markets and audience.
They need to respect different cultures and put them in practices.
 It is required by Penny supermarket to first gather research about the market they want to
enter. It is necessary that they are utilising all the resources available with them to
effectively conduct market research. They can also make use of various sources that are

set up by government bodies these are providing regular market reports, researches and
can also help companies to attain finances easily.
 There are also a number of technological factors to be considered which will help penny
supermarket to successfully set up their operations in the market. Company can pay for
being visible on search engines. There are a number of consumers looking for various
products and services online. It will effectively help companies to share and
communicate their ideologies with consumers reaching maximum possible consumer at a
time.

REFERENCES
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Kabalina, V., Zelenova, O. and Reshetnikova, K., 2019. Contemporary Human Resource
Management Practices in Russia: Flexibility under Uncertainty. International Studies
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