Impact of Brexit and COVID-19 on Penny Supermarket's Expansion into UK Market

This report discusses the market structure in the UK, economic factors affecting Penny Supermarket, impacts of Brexit and COVID-19 on the business operations, and provides recommendations.

Contemporary Business
Environment

ABSTRACT
This report has been summarised about the Penny Market which is German based grocery
selling company. They wanted to expand their operations into UK market but before it,
management has to identify the market structure of retail sector, impact of Brexit, economic
factors which affect the business and COVID-19 impact of the organization. In addition, this
report also discussed about the impact of COVID-19 in short run as well as in long term.
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ABSTRACT 1
INTRODUCTION 3
MAIN BODY 3
1. Explain the market structure in the UK within which the company will be operating 3
2. Identify economic factors within the UK that will affect the business of the company 4
3. Explain impacts of Brexit on the business operations of the company 6
4. Analyse the impact COVID-19 is likely to have on the business of the company 7
CONCLUSION 7
RECOMMENDATION 8
REFERENCES 9
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INTRODUCTION
Contemporary refer to the belonging to the same amount of time' and to understand better, it
is a business environment with a large global marketplace that continues to evolve at a very rapid
rate (Akhtar and et.al., 2018). The owner of this business must be qualified enough just to meet
the expectations and changes which need to be made in business in order to respond quickly.
Penny Supermarket is selected for this report and it is subsidiary company of Rewe Groups.
It is a retail grocery company headquartered in Germany and founded in 1973. It operates in
several other European countries. The organization plans to create operations in the United
Kingdom. This report covers several topics such as market structure of UK, economic factors
inside UK which affect the business and measure the impact of Brexit on business operations. In
addition, evaluate the impact of COVID-19 on business in short as well as long period.
MAIN BODY
1. Explain the market structure in the UK within which the company will be operating
The market structure is used to define the best organisational and other requirements of the
market. They concentrate on those features that influence the nature of competitiveness and
pricing, although it is vital not simply to put too much importance on the share of the market of
established companies in the industry. There are some different types of market structure which
briefly explained below:
Perfect Competition: There are a huge number of buyers as well as sellers out there. All
market vendors are small sellers in rivalry with one another (Beynon-Davies, 2020). There is no
major seller with any substantial business impact. So, all companies in such a market are price
makers.
Monopoly: There's only the one supplier in a monopoly style of market structure, so a
single company can dominate the overall market. Since it has entire market power and they are
price maker. Consumers have little choice and should pay the price offered by seller.
Monopolistic competition: In this market structure, there are a good amount of buyers and
sellers. But not all of them offer similar product. The goods are identical, but all vendors offer
slightly unique product.
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Oligopoly: There have only been a few companies in the market. Although the number of
companies is not explicit, 3-5 dominant companies are assumed to be the average. So,
throughout the case of an oligopoly, the consumers are far bigger than distributors.
The UK's main supermarkets are generally known as 'Big 4' which includes Tesco Plc,
Sainsbury, Asda and Morrison’s. There is no question that the UK grocery industry is related
to an oligopoly market as it suits the attributes of oligopoly market (Black, 2019). According to
Anderton, 'the oligopolistic market is that where a limited number of companies compete with
each other. The UK retail sector is a powerful example of this. In oligopolistic market there is
several numbers of characteristics that suit the industry. There are only four major supermarkets
in the UK market and entry barriers tend to increase. Rivalry in the UK supermarkets appears to
take the shape of non - price factors. , companies are inter-dependent. For example, the actions of
Tesco would have a direct effect on other.
In context of Penny Supermarket, company face huge difficulty to enter in UK’s
supermarket industry. In this market, already various established firm operating and they has
huge name in the grocery and retail business. In addition, in the oligopoly market structure if
Penny company wanted to expand their operations in UK, so they has to offer some unique
products that helps in attracting more and more customer.
2. Identify economic factors within the UK that will affect the business of the company
Demand and Supply: The law of supply or demand is also an economic concept that
explains how supply and demand is interrelated and how that relation influences the price of
commodities. However, as demand rises and supply stays the same, higher demand contributes to
high price stability and vice versa. Supply and demand are also beneficial to the economy since
they have an effect on consumer products & services prices in the market. Economic experts and
businesses evaluate the relationship among supply and demand when taking strategic purchase
decision (Boone, Kurtz and Berston, 2019). Higher the demand or supply of Penny supermarket
products is beneficial for the organization. In order to make their space in UK’s market, Penny
Company has to offer unique products in order to attract large number of customers or maximise
their production.
Income level: It is one of the most important economic factors which affect the business
and their productivity as well as profitability. If the per capital of income of UK consumer is
high then they are ready to spend and Penny Market can make their price strategy accordingly.
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On the other side, if income level is low then organization has to target their audience
accordingly. Basically, in order to expand their operations in UK market they has to evaluate this
factor and make strategies which helps in achieving business goals & objectives.
Interest rate: The effect of changes in interest rates differs from business - to - business.
Companies that produce luxury goods were hit hardest by rising interest rates. It's because most
consumers eliminate non-essentials as their profit drop as a consequence of interest rate
increases. High interest rates impact small businesses that are more likely to run with insufficient
cash flow. Small businesses should throw away more resources to be able to cover any loans and
obligations that limit the revenue accessible to the business. High levels also can decrease the
cost of assets, making it harder to sell for money.
In context of Penny Market, interest rate is the most important economic factor which also
affects this organization as well. Higher the interest rate will discourage the people or
organization to spend more to purchase goods & services (Calabrese and et.al., 2018). In case of
low interest rate, people are encouraged or motivated to buy some more because people of have
more savings due to low interest rate. On the other side, when interest rate is high and it also
reduces the individual spending that minimise the overall demand of Penny Supermarket. Lower
the interest rate maximise the demand and high interest rate reduces the demand of goods &
services which further affect the business operations of Penny Market who wishes to expand
their operations in UK.
Taxes: This factor also affect the demand and supply of particular products & services, so
management has to make some strategies after evaluating the impact of this economic factor on
the business. Company taxation affects the expense of a business. For example, an increase in
corporate tax will have the same impact as an increase in product costs, which may result in an
increase in product prices. Taxpayers are required to pay income taxes on an individual basis. If
the individual refuses to pay, there will be a variety of adverse effects against them, including
prison time. Taxes decrease the discretionary revenue of the investor and leave the customer
unattended (Amankwah-Amoah, Osabutey and Egbetokun, 2018). High tax rate reduces
individual spending which reduces the overall demand of market regarding Penny Market’s
products & services. On the other side, when taxes are low it will increase individual spending
which is beneficial as well as profitable for the organization. It helps in maximising demand for
the products & Service Company offer and also rise their profit margin. It is very essential for
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the organization to evaluate this economic factor before running their operations into UK market,
in order to maximise their productivity as well as profitability.
3. Explain impacts of Brexit on the business operations of the company
"Brexit" is an uncommon form of instability shock, since there are several unknown
variables that are impossible for companies to quantify (Čepel and et.al., 2018). For example,
there is confusion about the conditions upon which UK will leave the EU market. Commonly
utilized uncertainty indicators offer contradictory signals about what has changed to instability
since the EU referendum. Media-based indicators have risen to record levels, although there has
been almost no rise in other measures, including such stock market returns. This, along with the
peculiar nature of the breeze instability shock, means that the new strategies are likely to be
needed.
German companies have been already impacted by the negative impacts of Brexit, said
by Holger Bingmann, president of the BGA international trade industry association, referring to
losses of EUR 3.5 billion for German exporters in 2019. The influences of the Brexit have
already been felt. The British pound also lost substantial buying power against euro. This also
limits the selling prospects of German firms. Germany's exports to a island dropped by about
four per cent last year. The UK was Germany's third-largest business, with EUR 89 billion,
before the Brexit vote. Preliminary estimates indicate that the United Kingdom is just fifth
behind Netherlands in 2018, with EUR 82 billion. It is incomparably more difficult for Britain to
reach the uncontrolled breeze. The first effects can already be seen on island. British economic
performance is rising considerably lower than it was before the vote. Given the latest market
survey, DIHK expects economic growth to also be far below the EU average in 2019.
Brexit affect the Penny Supermarket in terms of several aspects such as taxes & duties,
safety standards, personal data, movement of goods and people (Matović, 2020). Import and
export of goods into EU countries includes some aspect which required considering such as
relevant VAT charges, VAT refund requests and (possibly) customs and excise duties.
Government funding including grants and group exemption and travel & logistics like
deployment. Product protection or environmentalist-compliance, namely packaging materials
that apply to EU licencing such as Copyright, trademarks, patents etc. Environmental
manufacturing practises, including pollution standards. Transfer of private information between
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both the EU and the United Kingdom. Formal cooperation of qualifications and applicable
licences includes various documents such as audit, banking and insurance licences.
"Brexit has set its shadow over the trade between the United Kingdom and Germany over
the last few years," Bingmann said. The specialist mentioned that during the first half of this
year, German exporters throughout the United Kingdom incurred economic loss of more than €
3.5 billion ($3.85 billion) due to the adverse impact of the Brexit. The true magnitude of the
harm to bilateral trade is expected to be "much higher and it will only becoming evident in
another few months," he said, as many companies have just recharged their inventory in United
Kingdom to avoid disturbances to supply chain throughout the coming months.
4. Analyse the impact COVID-19 is likely to have on the business of the company
The short term impact of COVID-19 virus already has contributed to a variety of
shutdowns and work ban in the workplaces. Retail stores should have a strategy that guarantees
the safety of workers while still attempting to sustain business as normal (Raman, Garg and
Thapliyal, 2019). Because of this, Penny Supermarket Company faces the financial crises, so it is
quite difficult to expand their operations into UK market. Beyond merely having a crisis strategic
plan, businesses should think of how they can handle their employees in a number of different
situations.
Long term impact of COVID-19 on Penny Market is that, UK’s government will change
their trading policy and several restriction in order to prevent the coronavirus spread. Due to
sudden shutdown, organization has to face several challenges such as lack of financial resource,
implementation of government regulation regarding COVID-19 prevention. Unemployment in
the world increases due top loss of several jobs. Economy of the world also decreases which
required several strategies as well as time to recover. China's experience tells how creative
businesses could cope with these difficulties; during the height of epidemic, grocery operators
have temporarily employed thousands of restaurant workers who have been lagging behind due
to closure of restaurants to better meet demand spikes. Many organisations also transferred staff
around the company to fill vacancies and alleviate overworked staff.
CONCLUSION
From the above discussion it has been observed that contemporary business environment
include the several changes which can provide several opportunities as well as risk. Before
expanding their business operations into other country, management has to evaluate the situation
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of that particular market along with demand and supply of product which they are going to
offered. In addition, there are several economic factors which affect the UK’s market and other
organizations whose wish to expand their operations in UK. Demand and supply, income level,
taxes, interest rate etc. are the factors which affect overall performance of the organization.
Along with it, COVID-19 leaves the short term as well as long term impact and economy has to
suffer from it.
RECOMMENDATION
From the above analysis, it has been recommended that all retailers are updating their
continuity strategy to inform clients and consumers, handle the inevitable supply chain shortages
and market surprises, prioritise vital business operations and build contingencies for disruptions
(Xie and Redding, 2018). This is very well advanced, but will not be enough if the conflict
continues to grow at the rate of recent months. Penny Market need to prepare and develop a
scalable and manoeuvrable crisis management capacity now, not once it becomes necessary.
Most organisations are currently still in the initial stages of the responses, handling urgent
problems for their own employees, implementing travel restrictions, cancelling large-scale
activities, and enforcing quarantine periods. This is vital, but it just scratches the bottom of
where companies need to go. Penny Market needs to quickly consider a variety of possibilities
on how COVID-19 could have an effect on its buyers and employees, as well as on its own
activities.
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REFERENCES
Books & Journals
Akhtar, P. and et.al., 2018. Essential micro‐foundations for contemporary business operations:
top management tangible competencies, relationship‐based business networks and
environmental sustainability. British Journal of Management, 29(1), pp.43-62.
Amankwah-Amoah, J., Osabutey, E. L. and Egbetokun, A., 2018. Contemporary challenges and
opportunities of doing business in Africa: The emerging roles and effects of
technologies. Technological Forecasting and Social Change, 131, pp.171-174.
Beynon-Davies, P., 2020. Business information systems. Red Globe Press.
Black, K., 2019. Business statistics: for contemporary decision making. John Wiley & Sons.
Boone, L. E., Kurtz, D. L. and Berston, S., 2019. Contemporary business. John Wiley & Sons.
Calabrese, M. and et.al., 2018. From mechanical to cognitive view: The changes of decision
making in business environment. In Social Dynamics in a Systems Perspective (pp. 223-
240). Springer, Cham.
Čepel, M. and et.al., 2018. Business environment quality index in the SME segment. Journal of
Competitiveness.
Matović, I. M., 2020, June. Evolution of the Business Plan in Contemporary Business.
In Proceedings of the 17th International RAIS Conference on Social Sciences and
Humanities (pp. 71-76). Scientia Moralitas Research Institute.
Raman, G. V., Garg, S. and Thapliyal, S., 2019. Integrative live case: A contemporary business
ethics pedagogy. Journal of Business Ethics, 155(4), pp.1009-1032.
Xie, E. and Redding, K. S., 2018. State-owned enterprises in the contemporary global business
scenario: introduction. International Journal of Public Sector Management.
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