Penny Market's Potential in the UK Market: A Business Analysis

This report provides a comprehensive analysis of the business environment for Penny Market, a German grocery retail company, considering a potential market entry into the United Kingdom. It begins by defining the business environment and then explores various market structures, with a focus on the UK's grocery industry, which is identified as an oligopoly. The report examines key economic factors in the UK, including demand and supply, income levels, inflation rates, and employment rates, and discusses their potential impact on Penny Market's operations. Furthermore, it assesses the likely effects of Brexit on the company's business in the UK. The report concludes with recommendations for Penny Market's UK market entry strategy, incorporating insights from the economic and market structure analysis and the impact of Brexit and COVID-19. The report also provides an overview of the impact of COVID-19 on Penny Market. The report also provides a brief conclusion and recommendation section.

Contemporary
business
environment

Table of Contents
INTRODUCTION...........................................................................................................................1
DISCUSSION AND ANALYSIS ..................................................................................................1
The various market structures.....................................................................................................1
The Market structure of UK's Grocery industry ........................................................................1
Economic factors of UK and how they will affect penny market ..............................................2
Likely impact of Brexit on the Penny Market's Business in UK................................................2
Impact of COVID- 19 on Penny Market should it invest in UK................................................2
CONCLUSION................................................................................................................................3
RECOMMENDATION...................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Business environment can be defined as all the factors, both internal as well as external
that affect the functioning of an organization. These can include customers, employees, supply
and demand, management and suppliers. For an organization to function in an effective manner,
it is important to take into account the various factors that can impact its business operations as
well as productivity within the market (Jabłoński, 2019). Organization chosen for this report is
Penny market, which is a Germany based grocery retail company. The company was founded in
the year 1973 by Leibbrand Gruppe. The report includes a brief explanation of the various
market structures along with the market structure of the grocery sector of the United Kingdom. It
also includes a description of the various economic factors and their effect on the chosen
organization. Lastly, the report also includes an explanation of the impact the Brexit can have on
the business of the respective company.
DISCUSSION AND ANALYSIS
The various market structures
There are mainly four type of market structure i.e., perfect market structure, monopoly,
monopolistic and oligopoly (Mushtaq and Khan, 2020). Explanation are as follows :-
 Perfect market structure – In this, there are many firms as well as many buyers.
Business firms which are working in perfect market structure there is freedom of entry as
well as exit (Ma, Gans and Tourky, 2018). Along with this, they are selling homogeneous
products which means all goods are perfectly substitute for consumers.
 Monopoly – In monopoly market structure there are single sellers and buyers are not
specific. It is not easy for companies to enter into market as well as products can be either
differentiated or non-differentiated.
 Monopolistic – There are several firms working in this market structure with non-
interdependent pricing as well as quantity decision making (Maghfuriyah, Azam and
Shukri, 2019). Moreover, monopolistic market structure have many buyers and firms
have freedom to enter and exit. Products selling by companies are different but close
substitute in relation of consumers so their demand curves remain elastic.
1

 Oligopoly – There are few firms in oligopoly who have interdependent pricing as well as
quantity decision. In this market buyers are not specified and it is not easy to enter in
market. Offerings of companies can e either differentiated or non-differentiated.
The Market structure of UK's Grocery industry
UK's Grocery industry market structure in Oligopoly in which there are small number of
business firm as well as none of them have major influence on each other (Adel Mahrous and
Hammad, 2020). In addition to this, concentration ration results in measuring market share of
largest business firms. Although, in simple term it can be said that, monopoly is one firm,
duoploy is 2 and oligopoly is 2 or more than that. Moreover, in oligopoly there is no precise
upper limit on number of business firm but number should have to be low enough which action
taken by one company result in influencing others (COLLIN‐DUFRESNE, Junge and Trolle,
2016). In simple term it can be said that, grocery market of United Kingdom based on oligopoly
market structure which means that there are small number of firms as well as these firms each
other have no major influence on working of each others. There are several characteristics of
oligopoly market structure which provide assistance in understanding that why UK market
structure is oligopoly explanation are as follows :-
 Small number of large firms – In oligopoly market structure there are few business firm
whose working don't have major influence on each other.
 Identical or differentiate products – Few oligopolistic industries results in producing
products such as perfect competition while other offerings are differentiated products
more like monopolistic competition (Zachar and Daoutidis, 2016). Thus, identical
products oligopoly means process of raw material for producing such products which can
be use by other industries as inputs. On the other hand, differentiation products are those
which no other firm is manufacturing.
 Barriers to entry – Firms which are working within oligopolistic industry have attain and
retain market control by barriers to entry (Bertoletti and Etro, 2016). In the same manner
it is not easy to enter in retail market because there are several number of competitors.
Thus, from above characteristics it has been determined that Grocery industry of United
Kingdom market structure is Oligopoly.
2

Economic factors of UK and how they will affect penny market
Economic factors can be defined as the data about the market as well as the economy of a nation
that can have an impact on the business operations of a company. It is important to consider
these factors when an organization decides to expand or grow its business in a new country. This
is because they can either have a positive or a negative impact on its functioning and position
within the market (Kot, 2018). The different economic factors include demand and supply,
inflation rate, forex rate, taxes, recession and employment rates. Penny market wants to start its
operations in the United Kingdom. The country is an economically stable nation in comparison
to other countries with a large population that allows even the smaller markets to be profitable.
Also, it has a diverse economy with both public as well as private sectors that include various
organizations. Some of the economic factors that can affect the business operations are explained
below in context of Penny Market.
Demand and Supply – Demand and supply within a country indicate the relationship
between the quantity of a product or service that the produces are willing to sell at different
prices as well as the quantity that the customers want to buy. Both demand as well as supply are
important for a nation because they can have a significant impact on the prices of the products.
When the demand as well a s supply of the products within an economy balance out, the point is
known as equilibrium price. The data of the UK economy shows that the demand for the
products is outpacing their supply within the market. This is beneficial for the respective
organization. Not only this, it will be easier for the company to determine its target market.
Penny Market because it will have an access to a large number of customers and the opportunity
of satisfying their needs (Petrova, 2018). Besides this, the recent outbreak of COVID-19 can
have an impact on the company's operations. This can make it difficult for the company to
manufacture the products and supply the same in the market. Therefore, it can be said that
demand and supply within the UK can affect the functioning of Penny Market as well as its
overall profitability.
Income Level – This is another economic factor that can affect the operations of Penny
Market in the United Kingdom. The income level within a country can be defined as the total
amount of money that is available with the individuals or citizens to buy consumer goods. People
living in the United Kingdom have a medium to high level of income. This means that they can
afford buying different consume goods and have a high standard of living. This is beneficial for
3

the respective company as it can sell products at both affordable as well as high prices to the
customers. The country offers various employment opportunities to its citizens in order to
provide them with a good standard of living. It can be said that the income level of the respective
country can have a significant impact on the operations of Penny Marker. Since the level of
income of individuals is high, the respective company can consider selling its products at high
rates. As a result, the customers will be able to buy the products that are sold by Penny Market.
Similarly, had the income level of the individuals in the UK been low, their purchasing power
would also had been low.
Inflation Rate – It can be defined as the general rise in the overall price levels of an
economy over a period of time (Rutland, 2018). This can result into a significant drop in the
purchasing power of money. It is important for the respective organization, Penny Market to
keep a track of the inflation rate of the United Kingdom, if it wants to conduct its business
activities effectively within the country. Inflation rate can be both positive as well as negative
depending on if it helps in increasing the overall level overall consumer demand or lead to a
decline in the same. The inflation rate during September 2020 was recorded to have increased
nearly form 0.5% in August 2020 to almost 0.7%. This means that the individuals within the
country are able to spend their money on buying products. This is good for the respective
company because it will be able to adjust the prices of its goods depending on the inflation rate
of the country. Another reason for it to be beneficial for the company is that there will be an
increase in the consumer demand and it will be able to serve the needs as well as preferences of
the customers in an effective manner.
Employment Rates – The employment rate within an country can also have an impact
on the overall business operations of a company. Employment rates can be describe as the way
of calculating the ratio of employed to working age. In order to calculate employment rates
population of working ages is divided into two parts that is individual who are employees as well
as who are unemployed. Through this percentage of the people who are working or employed in
a nation can be determined (Shankar, Kannan and Kumar, 2017). This is significant for
comparing different employment and working opportunities between different areas. For
calculating the employment rates whole population of employed people are divided by total
labour forces as well as multiply by 100 for getting employment rates.
4

This is considered to be an important indicator when an organization decides to start its
operations in a new country. Nearly 75% of the overall population of the country is employed.
This means that the individuals living in the United Kingdom are capable of buying products as
well as services in order to fulfil their day to day needs. But the recent outbreak of the COVID-
19 virus has led to many organizations terminating their employees. This means that a certain
proportion of the citizens are either unemployed or their level of income is very low. This can
have a negative impact on the overall business operations of the respective company, Penny
Market. The employment rate can have a significant impact on the overall demand of the
products. If the company will hire employees who are trained effectively and have a good
knowledge about the retail market, it will be able to create job opportunities for the people.
Likely impact of Brexit on the Penny Market's Business in UK
Brexit can be describe as the withdrawal of United Kingdom form the European Union. It
is developed form the “British exit” and it is used for defining UK's departure from Europe
Union. Brexit is refer as the decision taken by U.K, government in 2016 for the referendum in
order to leave European Unions. This decision has affected various areas such as trading sector,
immigration and so on. Exit of British for European trade as well as changes in relationship has
lead to bloc on migration, security along with trade.
United Kingdom vote to leave European Union have far reach impact for United
Kingdom retail industry (Huridi, Jamaludin and Hashim, 2020). In addition to this, by present
data it has been determined that effect of United kingdom to Leave European Union to Penny
Market is moderate in comparison of expectations. It come at while when several retailers are
trading on slim profit as well as declining sales as they got to know latest breed of customers.
Impact of COVID- 19 on Penny Market should it invest in UK
Immediate impact of COVID 19
Retail industry has been affected by COVID 19 and it will lead to have direct functioning
and performance of business. Due to COVID 19 retail sector operations has been affected which
lead to lower productivity. Penny company is dealing in super market sector and immediate
supply chain management (Olk, 2020). COVID 19 issues has influence over the demand of
products and services. It is very difficult for retail sector companies to manage demand
fluctuation and it directly impact over supply chain management process. Due to this respective
5

company is not able to determine demand of products and maintain right amount of stock with
in stores. Day to day functioning of retail business is majorly affected by COVID 19 and
organisation to have to change it business policies and regulation as per current situation. This
lead to have immediate impact on overall productivity and profitability of retail sector as well as
influence over the growth rate of business (Nosratabadi and et.al, 2020). Retail sector have to
make immediate changes in business as per the new government guideline and regulation in
order to successfully and effectively conducting business practices. Retail sector needs to change
it business strategies and plan in order to deal with the supply chain management practices and
deal with the issues significantly.
Future impact of COVID 19
COVID 19 will lead to have impact over future functioning of retail sector. Due to
COVID 19 retail sector policies and procedure to carry out business practices will be affected.
This will lead to have direct impact over process of business functioning as well as different
aspects of organisation. In future retail sector will includes different and innovative techniques
for promoting products and services (Lamine and et.al, 2020). Penny organisation will have to
use new and creative approach to attract customer as well as influence them towards
organisations. Marketing and sales operations of retail sector will be affected by COVID 19 and
it will influence over business practices. In future retail sector business will have to provide
effective services to customers by considering safety and security of business. This will impact
over customer base and market share of organisation. Retail sector have to make changes in
supply chain management system in order to correctly manage its products as well as ensure
timely delivery of products and services to customers (Abuselidze and Gogitidze, 2020). In
future retail sector needs to use new technology and techniques in order to provide its high
quality services to customers.
CONCLUSION
After going through overall discussion it has been summarised that, business environment
is wide in nature as well as get modify easily. Along with this, modification take place in
business environment have major impact on working of business firms in both positive and
negative manner. So, it is important for companies working is retail sector to conduct market
research in better manner because it will provide assistance to them in analysing each and every
factors in better manner. In addition to this, market structure is classified within major four
6

categories i.e., perfect market structure, monopoly, monopolistic and oligopoly. But UK grocery
industry is working on Oligopolistic market structure because there are few firms who don't have
significant influence on each others. Along with this, there are several economical factors which
have influence on working of Grocery industry such as demand and supply, income level,
inflation rate, ferox rate, interest rate, taxes, recession, employment rate and many more.
Furthermore, COVID-19 is present pandemic situation which have wide influence on
working of penny Market and it s important for them to take major steps in relation of same for
long term sustainability. This situation not only have present impact but it will also have future
impacts also on Penny market.
RECOMMENDATION
After going through overall discussion it has been recommended to Penny market that
they have to take major steps in relation of same because COVOD-19 situation have wide impact
on working of business firms. Along with this, it results in decreasing sales as well as companies
are also facing major losses. Moreover, business firm get their products or other raw material
outside the United Kingdom which also get affected as they are not able to buy products outside
the UK. Apart from this situation there are several other changes which taking place in business
environment and required to be manage by companies in better manner for their long term
sustainability. Below mention are some recommendation in relation of Penny market :-
 To overcome with situation of COVID-19 it is important for Penny Market that they
should have to focus only on daily consumable products. Because in this pandemic
situation people have low source of income as they are only buying products which are
necessary for them and required for fulfilling basic needs.
 Along with this, they have to establish their supply chain within United Kingdom only
because in situation of COVID-19 it will be not easy for Penny market to purchase
products outside of UK.
 Moreover, Penny market have to conduct market research for analysing each and every
factor related to same in better manner. So, that negative impact will minimize and
positive will gain.
7

REFERENCES
Books and Journals
Abuselidze, G. and Gogitidze, I., 2020. Tax policy for business entities under the conditions of
association with the European Union: features and optimization directions. E3SWC, 166,
p.13013.'
Adel, H.M., Mahrous, A.A. and Hammad, R., 2020. Entrepreneurial marketing strategy,
institutional environment, and business performance of SMEs in Egypt. Journal of
Entrepreneurship in Emerging Economies.
Amankwah-Amoah, J., Khan, Z. and Wood, G., 2020. COVID-19 and business failures: The
paradoxes of experience, scale, and scope for theory and practice. European
Management Journal.
Bertoletti, P. and Etro, F., 2016. Preferences, entry, and market structure. The RAND Journal of
Economics, 47(4), pp.792-821.
Chikweche, T. and Bressan, A., 2020. An investigation on the need for business advisors who
can respond to the changing needs of small business enterprises faced with a dynamic
operating environment. Journal of Small Business & Entrepreneurship, pp.1-25.
COLLIN‐DUFRESNE, P.I.E.R.R.E., Junge, B. and Trolle, A. B., 2016. Market structure and
transaction costs of index CDSs. The Journal of Finance.
Huridi, M.H., Jamaludin, A. and Hashim, R.A., 2020. INVESTIGATING A GLOBALISED
BUSINESS ENVIRONMENTS ON EXPORT PERFORMANCE. International Journal
of Psychosocial Rehabilitation, 24(4).
Jabłoński, M. ed., 2019. Sustainability of Young Companies–Contemporary Trends and
Challenges. MDPI.
Kabongo, J.D., 2020. The intellectual structure of the journal Business Strategy and the
Environment: A 25‐year author cocitation analysis. Business Strategy and the
Environment, 29(1), pp.170-179.
Kot, S., 2018. Sustainable supply chain management in small and medium enterprises.
Sustainability. 10(4). p.1143.
Lamine, E. and et.al, 2020. BPRIM: An integrated framework for business process management
and risk management. Computers in Industry, 117, p.103199.
Ma, J., Gans, J. S. and Tourky, R., 2018. Market structure in bitcoin mining (No. w24242).
National Bureau of Economic Research.
Maghfuriyah, A., Azam, S. and Shukri, S., 2019. Market structure and Islamic banking
performance in Indonesia: An error correction model. Management Science
Letters, 9(9), pp.1407-1418.
Mushtaq, S.A. and Khan, F.A., 2020. The Curve Of Cross Border Cartel Enforcement
(Challenges and Remedies in Global Business Environment). Journal of Accounting and
Finance in Emerging Economies, 6(1), pp.73-86.
Nosratabadi, S., and et.al, ., 2020. Sustainable banking; Evaluation of the European business
models. Sustainability, 12(6), p.2314.
Olk, P., 2020. Seeking ambidexterity in an increasingly turbulent environment: The case of the
University of Denver’s Daniels College of Business. Journal of Management
Inquiry, 29(2), pp.134-138.
8

Petrova, D., 2018. ACCOUNTING IN THE CONTEXT OF GLOBAL CORPORATE
MANAGEMENT–CONTEMPORARY REQUIREMENTS AND PROBLEMS.
Knowledge International Journal. 23(1). pp.295-298.
Rutland, P., 2018. Business and state in contemporary Russia. Routledge.
Shankar, K. M., Kannan, D. and Kumar, P. U., 2017. Analyzing sustainable manufacturing
practices–A case study in Indian context. Journal of Cleaner Production. 164. pp.1332-
1343.
Zachar, M. and Daoutidis, P., 2016. Microgrid/macrogrid energy exchange: A novel market
structure and stochastic scheduling. IEEE Transactions on Smart Grid, 8(1), pp.178-
189.
9