Penny Market's Expansion: UK Market Structure and Economic Impact

This report provides a comprehensive analysis of Penny Market's potential expansion into the UK market. It begins by describing the UK's oligopolistic market structure, highlighting key players and barriers to entry within the grocery industry. The report then delves into the economic factors impacting the business, including demand and supply dynamics, inflation rates, tax implications, and the potential effects of a recession. Furthermore, it examines the influence of Brexit on Penny Market's operations, focusing on import/export challenges and the impact on prices. The report also assesses the effects of the COVID-19 pandemic on business operations. The report concludes with recommendations for Penny Market to navigate the complexities of the UK business environment and succeed in the long term.

Evaluating the
contemporary business
environment

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Describing the market structure of the UK with reference to the company that is willing to
operate..........................................................................................................................................1
2. Explaining the economic factors of the UK that will affect the working of the firm..............2
3. Defining the impact of Brexit on operations of the business...................................................4
4. Explaining the impact of COVID-19 on business operations..................................................5
CONCLUSION................................................................................................................................6
RECOMMENDATIONS.................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Contemporary business environment can be referred as a dynamic market situation that is
changing very fast and the owner of a firm that operates in such environment have to cope with
up that (Xu, Chan and Yilin, 2020). The owner must be agile, flexible, and must have a potential
to dominate the market so that the firm will be profitable in the current as well as future market.
In this report there is a description about a firm named Penny market which is a supermarket and
is based in Germany and is willing to expand its operations in the UK. This report covers topics
such as different market structures and the market structure of the UK in which firm is willing to
operate as well as it includes the economic factors of the UK that affects the working of the
business. Apart from this the impact of Brexit in the working of the firm is also explained
briefly. Further COVID-19 impact on the firm that is Penny market is also described in the report
that is given below.
MAIN BODY
1. Describing the market structure of the UK with reference to the company that is willing to
operate
Market structure can be defined as the characteristic of a market in which a firm wants to
operate (Aarikka-Stenroos and Ritala, 2017). It can be a relation between seller to seller or seller
to customer or both depending upon the conditions. There are various market structures that are
explained briefly below-
 Perfect competition- It is a market condition in which there are a large number of buyer
and sellers. All the firms sells product that are identical to each other and there is freedom
of entry and exit in the market with no barriers. Firms in this market obtain normal profit
due to the market conditions that prevails.
 Monopoly- In this type of market there is a single seller of a product and it dominates the
market due to presence of large number of buyers. This market does not have freedom in
entry and exit of firms that is many barriers are there in the market. Due to all these the
firm that operates in this market enjoys profit above the margin because price can be
changes according to the needs of the company that operates in the market.
 Oligopoly- In this type of market there are few number of sellers that renders their
product and services to a large proportion of customers (Bangwal and Tiwari, 2019). In
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this market competition is very fierce and many companies collaborate so that the
competition can be minimised. Firms decide the prices in this market according to the
needs and requirements but can only influence up to a certain level
 Duopoly- It is a combination of monopoly and oligopoly in which there are two firms
that dominate the market. There are large number of sellers in this market and prices are
influenced by the companies.
 Monopolistic competition- In this type of market sellers sells differentiated product and
services. There is free entry and exit of the firms and profits in this type of market can
depend on the buyer concentration and the quality and quantity that a business provide to
its buyers (Creasy, 2017).
Market structure of the UK grocery industry is of oligopoly type. There are a few
supermarkets in the UK that dominate all of its market. Some of the firms that are operating there
are Sainsbury's Supermarkets Ltd, Wm Morrison Supermarkets plc, Aldi Stores Ltd, Tesco plc,
and Asda Stores Limited. Though there are few firms in this industry therefore there is a stiff
competition between each other. Oligopoly type of market prevails in the UK due to the
restriction in entry and exit of the firm, high investment cost, etc. that makes firm reluctant to
enter this industry. There is a high profit margin due to the structure of the market and sometimes
firm merge and operate as one so that a good market share can be captured, competition can be
minimized, and profits can be maximized. Penny market that is willing to enter the industry must
do a detailed research and analysis of the market conditions that prevails in the UK which is
oligopoly so that the firm can do its operations without must hassle and prosper in the long run.
2. Explaining the economic factors of the UK that will affect the working of the firm
Economic factor is one of the most important aspect that affect the business of a company
. It can affect the working of a firm either directly or indirectly depending on the operations of
the company and the market in which it is operating. The supermarket industry in the UK is full
of uncertainties due to the market conditions that prevails there (Farha, 2016). It include many
factors that are employment, individual wage rate, customer preferences, stagflation, inflation,
etc. Penny market that is a grocery retail company that is based in Germany and was willing to
expand its business in the UK has to do a detailed analysis of the following economic factors that
are explained in detail below-
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 Demand and supply- It is a very important factor that helps in determining prices of a
product and services at a particular level. When demand and supply of a product or
service is equal it is said to be the equilibrium level of the prices which means an
individual is willing and able to buy that product for the price that is prevailing in the
market conditions. There is a negative relationship between demand and price of a
product whereas there is a positive relationship between supply and price of a
commodity. It means if price of a product increases demand for that product will decrease
and if price of a commodity decreases, demand for that commodity will increase. While
in case of supply if prices of a product increases a firm will be willing to sell large
number off quantity so that profits can be maximized and thus supply for that product
increases and vice-versa. In case of supply there is inverse relationship which means
supply of a product is decreased (Goyal and Mishra, 2016). The grocery market in UK is
experiencing a huge inflow of demand because of the suppliers that are limited in
quantity that helps the market to mark the prices at a bit higher rate that eventually helps
firm in a direct way and sometimes indirectly too. There is a need of identifying the
opportunity in this market and then after a rigorous process of research, analysis, and
development of a product or service can be introduced so that it stands up to the
expectations of the customers.
 Inflation rate- It can be defined as increase in the prices of a commodity which
subsequently decreases the purchasing power of an individual. Inflation rate in the UK is
pretty low that is beneficial for the persons that are living there but firms find it difficult
to operate because of low prices of the market. Due to this the market that is operating in
the UK does its business very cautiously so that the conditions of the market would not
hamper the working of the business and profitability. Penny market should strike a
balance between the market price as well as the needs and requirements of the customer
so that it can be beneficial for the firm in the long run. It must place the rate in such a
way so that neither the interest of the buyer is hampered nor the profitability of the firm is
compromised (Harvey, Hodder and Brammer, 2017).
 Taxes- It is a very important aspect that can help a business grow and it has the potential
to damage the working of the business too. The UK government imposes different tax
rate according to the net profit that is generated by the companies. It has adopted a tax
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rate that is not much rigorous and that is very beneficial for the firm that operates in that
market. Penny market can expand its business in the UK and as the taxes are implied on
the basis of the profit earned by the firm it will be beneficial for the growth and
development of the company that is helpful for it in the long run. It can also capture a
large share of market as the taxes are lenient so it can expand the working of the business
without much problem of the taxes implied.
 Recession- It is a major factor that can impact adversely in the working of the firm. As
during the period of 2007-08 the whole world faced a period of great recession and every
major and minor industry faced a difficulties in its operation. Market in the UK also faced
a lot difficulties in operating in that phase, though it has overcome that period it is still
not that good in this aspect. The UK government has made some provisions that helped
industries but still it is not enough as companies are still facing a lot of difficulties. Penny
market that is willing to expand its market in the UK has to study this aspect of the
market in detail so that all the needs and requirements of all that is the government,
buyers, and the firm itself which is very beneficial in the long run (Heizer, 2016).
3. Defining the impact of Brexit on operations of the business
Brexit is a term given to the systematic exit of the UK from the other 28 nations of the
European Union (EU). This is a law in which there is an agreement that the UK will leave the
EU countries with effect from 31 January, 2019. This is very important for both as many
problems are created and there are solutions of only the few of the problems. It will affect the
export and import in various aspects that are directly related to it (Zaman, 2020)(Ορφανουδάκης,
2018).
As the market of grocery industry is dominated by major firms and the Brexit law affects
the working of existing and upcoming firms. Penny market which is a supermarket firm based on
Germany is willing to expand its business in the UK so it has to identify the opportunities and
threat that this law possess. As the firm operates in a business of providing essential items to the
customers and because of the exit of the UK prices of these product soar and thus people are
reluctant to buy products at a high cost. Increase tax rates of imports due to the exit of the UK
from the EU it will make firms feel the pressure in operating in this industry. Also different
nations have different policies of exports and tariff rates that is a negative point for the company
because earlier as the country was a part of EU the industries operating there enjoys a great
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portion of exports without much tariffs due to the policy adopted by it. Also there would be
higher prices because of it and the firms will have to operate on that price only which will result
in low profits and even heavy losses (Ismael and Indrajaya, 2019).
Investment by Penny market highly depends on the Brexit law as it is important for any
industry that is willing to operate in the UK. As the firm is operating in grocery industry it have a
huge effect of the law because of the market. The law will increase the prices for the firm and it
might be a burden for it as there are already many negative points like new market conditions,
customers, competition, etc. this law adds the complications for the firm. It is very difficult for
the firm to achieve desired profits due to high price level, stiff competition, and customer
preference for the earlier established brands (Mallinis, Mitsopoulos and Chrysafi, 2018). It must
also provide discounts and offers to the buyers so that a large market share can be captured
which can result in profitability but if it does not work for the company it would result in heavy
losses. Thus the firm that is Penny market must not invest in the UK due to the complications for
a new firm that the market possesses.
4. Explaining the impact of COVID-19 on business operations
COVID-19 brought fast changing and unexpected variable for the business which are
held in UK of all size for all sector. In the initial phase of corona lock down that was imposed
almost all over the world has restricted industries to do their operations and hindered the
profitability of all the firms. It has impacted all the businesses especially the supermarket stores
because these markets provide essential services to the customers that are needed on a daily
basis. As the product is necessary for all the individuals need, requirement, and demand for these
product and services drastically increased many folds in the COVID-19 period. Their demand is
more in UK because of the vast population and the area that it covers and also a customer cannot
survive without grocery products. Apart from this unemployment rate has also increased by 4%
to 6% due to job losses, pay cuts, and even many firms declared insolvent. Thus Penny market
has a great opportunity in this industry and if it invests its money in the UK it would easily get
the work force it requires and that too with a low cost (Novikova, Ivlev and Galukhin, 2019).
Penny market has to take all the necessary safety and precautionary measures such as wearing
mask, use of sanitizer, maintaining social distancing and must follow the guidelines issued by
World Health Organisation. This might increase the overall cost of working but the other
benefits of operating in the UK is far more so the firm must ignore these expenses rather it
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should take it as a investment which will be beneficial in the long run. The company is earning
more profit in UK because there is need of super market in every area so that there is no
gathering of people at one place and every customer also want that, in the UK online shopping is
also a trend so Penny market can also sell its products and services online for expansion in future
and to earn an good amount of profit. So by seeing the current scenario it is beneficial for the
firm to invest in the UK because of the opportunities that are given in the country and the market
it can capture is very large.
In the UK after taking all the precautionary and safety measures that are related to curb
COVID-19 all the customers has stockpiled goods because there is a fear that product will be out
of stock. There is high spike in demand of all grocery products due to which supermarkets
gained huge amount of profits. In the future if a similar situation like this arises it will help
Penny market if it is established in the UK (Oltarzhevskyi, 2019). In the future firm will have to
take necessary precautions because customers don't want to compromise with health and proper
hygiene should be maintained which will help it in achieving the share of market that it wants.
Also there is a high potential in the digital market the firm can explore it and it can be very
beneficial because due to COVID-19 people are still reluctant to go out and online shopping does
the job for the customer. Also Penny market operates in providing items that are essential for the
people and this is a only business that is profitable even when the economy is down. As it is a
basic necessity of an individual which is required for a sustainable life no matter if the price
increase the buyer will still purchase it which is very beneficial for the firm. There are various
other benefits also in operating in the UK that will directly help in the working of the firm and it
will add to its growth and profitability (Williams and Horodnic, 2017). Also the government of
the country is providing various subsidies to the companies that are willing to locate in the UK
and thus there are many positives aspects of investing in the country. Thus it is very beneficial
for the company both financially and economically to invest in the UK.
CONCLUSION
Contemporary business environment is a environment which is highly dynamic and gives
a chance to every individual owner of the firm to adapt with the situations that are prevailing
which can be beneficial for the firm in the long run. From the above it can be concluded that the
firm that is explained above which is Penny market have many challenges and difficulties in
expanding its business in the UK. Though it have many advantages too that cannot be
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undermined and thus it has to do a detail research and analysis of the above factors so that the
firm will be profitable in the long run. Market structure of the UK and its economic factor can be
very beneficial for the firm if used in a correct manner and thus it can be helpful in making a
large customer base for the firm. Brexit law can be a barrier for Penny market but it has to deal
with it accordingly so that it would not hamper the working of the firm. Also COVID-19 can be
seen as a advantage and thus it is very beneficial for the firm to invest in the UK.
RECOMMENDATIONS
It can be recommended from the above that Penny market can opt to invest in the UK
because the advantages are much more than disadvantages. Market structure of the UK is of
oligopoly nature and thus can be very helpful for a firm to gather and capture a big size of
market. Also the economic factors of the UK are not much adverse and can prove critical while
investing in the country. Brexit law possess some threat for the supermarket firm but that could
be overcome by applying reasonable skill during work. Also COVID-19 came as a blessing in
disguised for the firm and can take advantage of it in a correct manner which can be very
beneficial for the firm in the current scenario as well as in the future.
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REFERENCES
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Heizer, J., 2016. Operations management, 11/e. Pearson Education India.
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Landsat-8 Operational Land Imager (OLI) spectral indices for estimating fire severity in
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