Analysis of Waitrose and the potential to enter the Indian market

Aditya Dixit
aditya.dixit.1986@gmail.com 11/12/2012

Contents
About Waitrose ....................................................................................................................................... 2 Structure of the Organization ................................................................................................................. 3 Snapshot of Financial Performance, 2011-2012 ..................................................................................... 4 Comparison of Waitrose with two major competitors: Tesco and Sainsbury .................................... 6 Business Model ................................................................................................................................... 6 HR Policies ........................................................................................................................................... 7 SWOT Analysis..................................................................................................................................... 8 Strengths ......................................................................................................................................... 8 Weaknesses .................................................................................................................................... 8 Opportunities .................................................................................................................................. 8 Threats ............................................................................................................................................ 9 Analysis of Indian Retail market.............................................................................................................. 9 Porters 5 forces model ....................................................................................................................... 9 Rivalry among existing firms ........................................................................................................... 9 Threat of new entrants ................................................................................................................... 9 Threat of substitutes ..................................................................................................................... 10 Bargaining power of buyers .......................................................................................................... 10 Bargaining power of suppliers ...................................................................................................... 10 .......................................................................................................................................................... 10 PESTEL Analysis ................................................................................................................................. 11 What makes the entry attractive ...................................................................................................... 11 Issues Faced by the Industry ............................................................................................................. 11 Waitrose should note before entering the Indian Market ............................................................... 12 Conclusion ............................................................................................................................................. 12 References ............................................................................................................................................ 13

About Waitrose
Founded in 1904 by Wallace Waite, Arthur Rose and David Taylor in Acton, West London. Taken over by John Lewis Partnership in 1937, headquartered in Bracknell, England. Vision of the founder of the group, John Spedan Lewis was to create a business dedicated to the happiness of the staff through their worthwhile and satisfying employment in a successful business. Upmarket chain of supermarkets in the United Kingdom and the food division of employee-owned partnership, John Lewis. Other businesses include Convenience stores (Little Waitrose), John Lewis Foodhall (food halls in key stores of sister chain John Lewis), Waitrose Food, Fashion & Home and Motorway service station (Franchise of Welcome Break). Online services include Waitrose.com (to take online orders) and Ocado (in partnership with John Lewis). 282 location, 5400.4 in revenues, 68000 employees, 4% share in food market. Stores vary considerably in size, from 280 m2 to 5,200 m2. Has made a number of acquisitions of smaller chains since 2000. Has a goal of opening 400 branches across the UK by 2017 and doubling its revenue to 8bn by 2016. Claims its USPs to be its differences in production processes, quality of its products, and the expertise of the staff. Offers a self-service system known as 'Quick Check'. Claims to be more ethical than the competitors and is involved in charitable donations. Employees are Partners, and receive Partnership bonus and other benefits. Has a Royal Warrant to supply groceries, wine and spirits to Queen Elizabeth II and Prince Charles.

Structure of the Organization

Charlie Mayfield, Chairman, JL

Mark Price MD, Waitrose

Regional Directors(North and South), Director of retail

Heads of Retail Operation , Registrars Branches Level Partner, Specialist, Customer Service Assistant , Team Leader, Assistant Section Manager , Section Manager, Department Manager ,Branch Manager, Assistant Store Manager, Store Manager

Snapshot of Financial Performance, 2011-2012

Gross sales up 425.8m, 8.6%, to 5.40bn Sales excluding VAT up 372.4m, 7.9% to 5.07bn Operating profit down 14.3m, 5.2%, to 260.6m Mark Price, MD of Waitrose, claims that the Financial figures in 2012 were a little down due o Tough market conditions o Their philosophy of sacrificing short term goals to achieve long term objectives

Comparison of Waitrose with two major competitors: Tesco and Sainsbury

Waitrose Revenue(GBP) Operating Profit Average number of employees Number of Stores Selling Space (Square Feet) Revenue per employee Profit per employee Revenue per store Profit per store Revenue per sqr meter selling space Profit per sqr meter of selling space Total Selling Space/employees Tesco (UK ) Sainsbury

5,40,00,00,000 42,79,80,00,000 21,10,20,00,000 26,00,00,000 2,48,00,00,000 874000000 68,000 2,05,852 1,50,000 282 2,979 1,012 50,76,000 3,90,82,000 2,03,47,000 79,412 2,07,907 1,40,680 3,824 12,047 5,827 1,91,48,936 1,43,66,566 2,08,51,779 9,21,986 8,32,494 8,63,636 1,064 1,095 1,037 51 63 43 75 190 136 Figure 1

Compared to its two major competitors, Tesco and Sainsbury: Profit per store is higher than both the competitors, while the revenue per store ranks second. Revenue and Profit per square meter of selling space is comparable. The revenue and profit per employee is significantly lower. This may be due to providing better service, but it affects the overall profit margins of the company, as labour cost forms a significant portion of total expenditure.

These financial figures will be used later in the analysis.

Business Model
We believe our model, where commercial success is a driving force but where the needs of Customers, Partners, and long-term financial ambitions are balanced, represents a sustainable, compassionate and fairer form of capitalism and a better way to do business. In their own words, The Waitrose way is:
o Championing British We believe in always bringing people home-grown food and produce at its very best, celebrating the British food season and working with the best local and regional suppliers. Treading Lightly We believe in making the right choices for the environment by reducing packaging, waste, water and CO2 emissions, and sourcing our food and raw materials responsibly. At Waitrose, product stewardship and maintaining the highest levels of agricultural and environmental management are our key focus at home and abroad. We look closely at our operational impact on the environment and ask all own-label suppliers to reduce their business footprint too.

Treating people fairly We believe in treating our customers, Partners, farmers and suppliers fairly as well as supporting local charities and community groups through our Community Matters and Partner volunteering schemes. Living well We believe that eating well should be enjoyable. We provide a wide range of imaginative and nutritious choices to inspire people to eat more healthily and are ahead of targets for salt reduction.

Waitrose aims to provide fresh, high quality and safe food and provide a superior service and an overall better shopping experience. They do not compete on low price and do not command a dominant market share. Relies on creating repeat sales not through traditional methods like Loyalty cards etc but on better products and better shopping experience. Focus on differentiation strategy. They target upper market and are perceived as more expensive than the competitors. They are trying to change that perception by launching marketing schemes like Price Matching with Tesco. Trying to come out as charitable and ethical market chain by trying to minimize effect on the environment and launching charity schemes. This will strengthen an already positive brand image and to better attract their target segment. Fewer products sold in their stores compared to competitors and in order to grow revenues, they are opening more stores, while also increasing the products offered. Not much product differentiation in the sector and customers prefer to buy the items from the nearest possible location to save time, and at lowest cost. Through Waitrose.com, they are trying to reach a wider customer base in areas nearby the existing stores. They are also trying to create a product differentiation by launching products like Organic foods, which when coupled with home delivery, can help capture a greater market share. Relies on Partnership Program and Participative Management to attract, motivate and retain employees.

HR Policies
John Lewis promotes organizational democracy and treats all employees as Partners, proving them information about the business and involving them in decision making. Elected councils interact with the management, which not only helps in information sharing but also increases the accountability of the employees. Partnership publications, including weekly Gazette, help in creating a culture of transparency. This style of management not only increases the rights of the employees but also increases their responsibility towards the organization. A significant element of Partner reward is the Partnership bonus. This is shared equally as a percentage of annual pay amongst all Partners at all levels up to and including the Chairman. This tie up the financial incentives received by all the employees to the profit of Waitrose, which in turn increases partner commitment to the organization and results in better service to the customers. However, when compared to the competitors like Tesco and Sainsbury, the profit per employee is much higher and the chain needs to bring it down to comparable levels. Also, this variable pay allows them to lower the labour costs in the times of recession.

Waitrose also offers many different management courses, including the Retail Management Training Scheme (RMT) where people leaving school train to become section managers within two years, rise up to department managers in three years. They also have a Graduate Scheme that sees people achieving department manager level within two years. These schemes are very competitive and fulfilling. Overall, unlike some of its competitors like Walmart, they are much more employee friendly.

SWOT Analysis
Strengths Loyal and motivated employees who take work ownership, very low turnover Attracts better employees than competitors through Partnership model It also increases the accountability of all the employees in the organization Flexibility in labour cost as they can vary the bonuses depending on the market conditions to lower labour cost up to a certain limit Focus on narrow product and market segment, where profit margins are higher Participation of employees in decision making ensures their support once the decision is made, thus improving the execution of strategy Has created an image among customers of providing better products, superior service and of being ethical and environmental friendly Partnership with John Lewis to create economies of scale Weaknesses With current product offerings, growth in revenues possible through opening new stores, thus they will require more capital expenditure to expand revenues Being a Partnership, does not have deep pockets like Tesco and Sainsbury to make huge investments. Trying to create differentiation in a selling of commodities, it adds to cost but the value addition to customer is difficult to communicate. Participative decision making slows down the decision making process and makes it difficult to take tough decisions Revenues per employee and Profit per employee are significantly lower than the competitors Follows a uniform bonus strategy and may find it difficult to attract employees at higher levels, where the bonus offered by the competitors may be higher Their compensation system may also encourage some employees to become free riders and to slack off. Opportunities Relying on their online service, Waitrose.com, can help target greater market segment in the nearby geographical areas. Can rely on word of mouth publicity through the employees, who have direct interest in higher sales of Waitrose.

Can use the predictive analytics model to better organize the stores and supply chain, thus improving efficiency and reducing wastage, by combining the expertise of staff with information technology. Can expand the products sold in the stores to increase the amount of sales per transaction. Their partnership with John Lewis will help them leverage the strengths of John Lewis Can create partnerships similar to that it has with John Lewis and offer food items in other chains which does not already sell food items Can expand into the North West geographical region where it has minimum presence. Can even plan to expand overseas. By creating awareness about Organic food it sells, it can create a niche market segment for itself.

Threats With more women entering the workforce, time available for shopping will fall and customers will prefer smaller, nearby stores with lower checkout time. Reliance on small geographical location and narrow market segment increases the overall risk During recession, the customers become more price conscious and their customers may move to cheaper competitors like Tesco. New competitors with similar business models may pose a threat, as they do not have a sustainable competitive advantage Laying off the employees during difficult times is difficult due to participative decision making, thus reducing its flexibility in recession.

Analysis of Indian Retail market

Porters 5 forces model
Rivalry among existing firms The organized retail industry in India is largely an unexplored territory. While many chains are entering the market, it is restricted mostly to Tier I and Tier II cities. Some of the competitors include Reliance, Mother Dairy, Subiksha, Spencers, Big Bazaar (Food Bazaar) and some smaller chains like 8-10. The lack of intense competition offers huge potential for Waitrose and makes it an attractive destination. 96 % of the retail market is still restricted to unorganized sector: the traditional Mom and Pop store and traditional grocery vendors (mandi) which have no differentiation. Threat of new entrants The lack of competition and huge growth potential, along with the reforms in the retail, has attracted many global and local players. This trend is expected to continue and the threat of

new entrants into the market is high. However, owing to the large investments needed, both in the stores and in supply chains, eventually threat of new entrants is expected to fall as the market matures and the competition intensifies. Threat of substitutes The threat of substitute products is low as most of the products sold come under essential needs. Bargaining power of buyers The bargaining power of buyers is high, as the customers can buy from the nearby stores in unorganized sector. Also, negative perception of organized retail chains among Indians make them question about the quality of products, and better deals will have to be offered to make them change this mentality.The switching cost for the customers is also low. Bargaining power of suppliers The bargaining power of the suppliers, the farmers in grocery products and manufacturers in other items, is low. Traditionally, this low bargaining power had been exploited by the middlemen. Also, by offering a fair price, the retail chain can build long lasting relationships with the suppliers.

Indian ranks lower than most of the countries, even in the same Per capita GDP range, thus inviting new entrants to enter the market

Learning from PESTEL Analysis What makes the entry attractive

Liberalization of economy One of the fastest growing major economy Increasing number of reforms being adapted by India Smaller family sizes and decreasing average age of the customers Advances in information and communication technologies leading to more efficient supply chains, reduction in wastages and better prediction systems Increasing adaption of mobile and Internet in India creates an opportunity for home delivery business model Urbanization Rise in income Rising population and falling average age in India leads to availability of cheap labour Inefficiencies in existing unorganized retail offers potential to provide better services at lower prices Awareness for quality. With more Indians getting exposure to western markets, demand for better service is increasing

More Intermediaries in India leads to inefficiency and higher prices compared to US

Issues Faced by the Industry

Very low performance levels in the industry Costly real estate in metro cities Threat of changing policies, both from current government, and from new government that may be elected Poor Infrastructure High taxes and bureaucratic red tape Negative attitude of industry intentions Lack of enough qualified workforce to cater to the need Policy restriction and age old laws

Unique points about the Indian Market

The quality of food items sold in India are often substandard. The Indian media has unearthed many cases of adulteration in food items, and this has created awareness among Indian customers towards safe and organic food. Since these items are hardly available even in metro cities, the scope of Waitrose is huge. Since a number of grocery stores offer home delivery, it will be an important feature required to succeed in India. It shouldnt be restricted only to the Internet, but should also have the option to order via phone. With more women entering workforce, and rising cost of real estate in major cities, the focus on smaller stores, with shorter check out time, may be more successful Self check-out service has not been tried in India and the customers are habitual to the traditional counter check out. Participative decision making may have worked for of the countries, like Semco in Brazil, but owing to the high power distance in India, participative decision making may not work. Research has shown that the bosses, who encourage the subordinates to express their views, are often perceived as weak.

Conclusion
Waitrose competes on its own unique business model, targeting upper market segment by providing better products and services. They have relied on their partnership model to attract and motivate their employees, which is a source of better service and their unique positioning, and also the source of their competitive advantage. This has worked well in UK in the past and they are now trying to expand their market share by competing with other major retailers like Tesco by matching their low prices and increasing the share of their online sales. However, competing on prices may be difficult for them and may dilute their existing position. In order to expand the revenues, expanding to wider geographical markets, like North West in UK, and to emerging overseas markets like India and China may be a good strategy. India offers a plethora of opportunities to Waitrose and may be a very lucrative market. Rising income levels, rising awareness levels among customers, Urbanization and lack of retail chains proving high quality food and grocery items etc creates a unique opportunity to build on its strength by adapting their business model to Indian conditions and to create first movers advantage for themselves.

References
http://en.wikipedia.org/wiki/Waitrose John Lewis Annual Report 2012 Pacific Economic Council How Competitive Forces Shape Strategy by Michael E. Porter http://www.tescoplc.com/index.asp?pageid=30#note2 http://annualreport2011.j-sainsbury.co.uk/businessreview/operating/index.html