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Analyzing Profitability of Home Bargains (supermarket) in present competitive Markets

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Introduction

At present the retail sector is the highest growing which alone contributed £340 billion worth of retail sales to the economy in year 2015 (About Home Bargainsyear ). Further, it generates employment opportunity to around 2.8 million(Retail sales in UK, 2016).Thereafter, in UK retail sector contributes to 5% of total GDP(About Home Bargains, 2016).Due to availability of immense growth and development opportunities the industry has attracted competition. vague Home Bargains is well established retail company that owns and operates chain of discount stores providing range of general merchandise products, grocery etc. Home Bargains was founded in 1976 in England (About Home Bargains,2016). The brand is providing its effective services within UK. In 2013; Home Bargains published a record breaking turnover of £1 billion(Retail sales in UK, 2016). The brand have total 370 stores across the nation that provide effective and top quality services to wide range of customers. The UK retail market is facing tough competition at present with presence of giant companies like, Tesco, Sainsbury, Morrison, Asda etc (Anderson, Fornell and Lehmann, 2004). In order to stay competitive and maintain their proficiency, companies are taking various actions like, introduction of new techniques, improved marketing, use of sales tactics etc. There is increase in use of online channels for sales and marketing. Presently, 12% proportion of sales are made online (Retail sales in UK, 2016).

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1. Literature Review

The concept of profitability for supermarket industry

According to the views of Rishika, Janakiraman and Bezawada, (2013) profitability means the operating efficiency of organization. It refers to competence of business to make profits on sales. In the opinion of Anderson, Fornell and Rust, (2007) profitability is the main objective of all the organization. In the absence of profitability the organization will not be able to sustain in the long run. Further, profit is term that describes what is remaining of revenue a business generates after it pays all expenditure directly associated to the generation of the profit. In the words of Yu, Ramanathan and Nath, (2014) profitability is ability of organization to use its resources to generate revenue in excess of its expenses. In accordance to the report, published by Centre for Digital Financial Inclusion, the average profit margin for the supermarket industry was 1.9% in 2010. The studies show that supermarket business is low margin sector with the normal income margin for supermarket typically varying from 1-2%. Hirsch and Hartmann, (2014) has argued that natural, organic and gourmet food market relish higher averages from 3.5-6% (Retail sales in UK, 2016). In the opinion of Anderson, Fornell and Lehmann, (2004) supermarket industry is extremely fragmented. In order to improve the profitability, supermarkets are focusing more on customer satisfaction, improved convenience through effective services, intense marketing etc.

1.1. The factors contributing in profitability of retail industry

According to Akçay, Boyacı and Zhang, (2013) profitability is the efficiency of a business to earn an income. A profit is what is left of the revenue a business generates after it repays all expenses directly associated to the generation of the revenue like, manufacturing a product and other expenses associated to the conduct of the business functions. There are ranges of factors that impact the profit of the retail industry. As per the views of Christine, Devie and Tarigan, 2015 cost of goods sold is main component in long term profitability. It further takes into consideration direct and indirect cost that finally impacts bottom line profits. A retailer identify these cost by involving the worth of inventory at beginning of given duration , adding in new purchases made during the duration and also computing labour and shipping cost. By reducing the unnecessary cost and increasing economies of scale, company can improve its profit margin. McNeill,2012 state that mark up decision also play strong role in contributing towards the profitability of retail industry. Markup is amount a seller can charge in addition to the actual cost of delivering the product to market so as to make a profit. Markup is important part of business competitive strategy as it requires to ascertain the manner in which entity cover present cost but also permits for future contingency (Gouldson and Sullivan, 2014).

IN addition to this aspect Schiraldi, Smith and Takahashi, 2012 also stated that price is leading factor that impact of buyer’s decision on whether to purchase a product. Therefore, retailer decides whether they must charge competitive price, premium or low. Any mistake in charging price can result into buyer shift to rival product. Therefore, retailer must charge price that is must high enough to cover their cost but not so high that it pulls back the prospective customers. The price is used as tool by retailer whereby they assure maximum overall profit for the merchandise even it means less profit per individual item sold (Wrigley and Lowe, 2014). Thereafter, profitability in retail industry is also determined by the efficiency of company to keep minimum cost of operations. In order to keep minimum cost of functioning, entity can use various tactics like, bargaining from suppliers; outsource certain function if they can be cheaply performed by other entity. Thereafter, inventory and distribution is another factor that contributes towards the profitability of business. As per the surveys of Forbes, in 2011 there is 40% hike in online sales while in bricks and mortar stores sales increased only 5.3% (Profitability in Supermarket industry. 2016). Therefore, retailers are required to use improved and upgraded online techniques for enhancing its profit margin. This will also help in increasing brand love among customers as retailer tends to increase convenience from buyers. Ellram, La Londe and Weber,( 2013)states that sales and service strategies is another factor that contribute towards profitability. Retailers are offering similar products may differentiate themselves through customer service strategies purpose at influencing customer’s loyalty and repetitive sales like, free shipping etc. The effective service strategies play a significant role in improving the profit margin of business. As per the views of Mani, Kesavan and Swaminathan, (2015) when buyers are required to pay for return shipping, there worth of buying declines. Thus, to enhance the frequency of the purchase by customers, it is important for company to use service strategies.

Furthermore, in the opinion of Sekeroglu and Altan, (2014) the inventory management is the main factor that help in improving profitability within retail business. In case, the retail outlets store much of any item that does not sell easily, they are stuck with the cost of stocking and showcasing the products. Similarly, if the retail unit have too less of highly demanded product than they may lose out the prospective profits by not possessing item on hand. Thereafter, retailers to maintain there profit margin are needed to have proper product mix. In the words of Billig and Waterman, (2014) retailers that specialize in one particular kind of products are open to any price volatility for that unit. The maximum retailers use a product mix, which defend them from the ups and downs connected with any specific product. The product mix also helps retailers to render various products, which pull in a broad range of prospective customers. Retailers can also learn about the gross profit margins from each type of product, set various price points and discover the most gainful mix of products.

1.2. The key factors that enhance profitability of supermarket in today's competitive era.

The retail organizations are at present working in cut throat competitive market(Akçay, Boyacı and Zhang, 2013). They are recognized a promptly developing channels that play a viable role in emerging economic progress of nation. In the current scenario,buyers are getting more attracted towards retail market(Mani, Kesavan and Swaminathan, 2015). With this aspect there's is substantial amount of increase in market competition. Therefore, to survive in the present competitive era, and maintain the profitability position, it is important for entity to pay consideration to various factors. As per the views of Ellram, La Londe and Weber, ( 2013)customer loyalty is key factor that help in improving the profitability of retail organization. This further help in assuring repetitive purchase from customers leading to improvement in profit margin. In order to maintain the customer loyalty retailers are required to fulfil different needs and preference of buyers resulting into their maximum overall satisfaction level with brand( Akçay, Boyacı and Zhang, 2013). In addition to this aspect, it is important for company to keep the customers informed about its products and services. In this respect, intense marketing and promotion can be used as tool for spreading awareness among prospective buyers. Mani, Kesavan and Swaminathan, (2015)states that customers must be provided with value for money. The large retail entities generally deal in volumes and can render a broad range of products at reasonable price and therefore stimulating customers at a very big scale. The other major factor that improves the profitability of supermarket in retail industry is sales turnover. In the opinion of Schiraldi, Smith and Takahashi, 2012retail organization must use different tactics to maximize the sales of business. In this respect, suggestive selling is the aspect that can be considered by the retailers to maximize sales turnover. According to Sekeroglu and Altan, (2014)suggestive selling is function whereby sales personnel recommend the best product that can meet the customers need. It is effective method that help in building worth of the offering in the Schiraldi, Smith and Takahashi, 2012 buyers mind, it become easy for sales executive to sell the product and improve the turnover. According to the views of Akçay, Boyacı and Zhang, (2013)advance technology is another factor responsible for maximizing profitability of supermarket in present competitive world. The progressive technology has made it easy going for the retailers to manage large scale business and cater the needs of usage. In this respect, the launch of computerized billing system, electronic media and commerce techniques, barcode system has modified the face of retailing in rendering products and services to buyers(Sekeroglu and Altan, 2014). Also the use of online market has impelled the retail sector towards progressive growth structure. Gouldson and Sullivan, 2014 states that value selling is another factor that enable retailers to maximize retail sales. Therefore, retailers can communicate the value of product that they are offering. With this aspect, company can also justify the prices charged by them in return of quality of good offered by brand. Therefore, entity can increase the sales of its premium products with the help of strong concentration on value selling aspect.

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2. Research Aims/ Objectives.

The current study is done with the aim that is to analyse the probability??? within retail industry in today's competitive market: in the context of Home Bargains. The research will also shed light on factors that can be considered by entity to improve the profit margin. With the help of this study, learning will be shown regarding the methods that can be used to gain attention of maximum audience that directly leads to improvement in sales and revenue.

AIM: To analyse the profitability margin of home bargain that how its beating or gaining the enough profit compared to there sp competitors in this present market.

OBJECTIVES:

  • To critically evaluate the concept of profitability for supermarket industry.
  • To determine the factors contributing in profitability of retail industry in general
  • To investigate the key factor which enhance profitability of supermarket in competitive era (consumer loyalty/ sales turnover)by analysing the available sales and customer data
  • To analyse the strategies which Home Bargains uses to enhance its profitability in present UK retail competitive market. √

RESEARCH QUESTION:

  • What do you understand by the concept of profitability for supermarket industry?
  • What are the factors that contribute in profitability of retail industry?
  • What will be the main factor that will enhance profitability of supermarket in competitive era?

3. Research Methodology

The research methodology is the systematic, theoretical analysis of the techniques employed to a area of study. It can be defined as procedure to gather information and data for the objective of decision making. The research methodology is broad filed that involve publication of research, interview, survey and other investigation technique.

3.1. Research-philosophy:

Research philosophy is regarded to be worth in addition to the belief of the investigator towards application of outcomes of the investigation in various contexts. The research philosophy is effective tool that can be used for doing detailed analysis regarding how Home Bargains is performing better as compared to its rivals Further, by choice any impressive philosophy it is manageable to measure the tool of data analysis along with the fundamental purpose behind performing study can be identified easily. ????There are mainly two types of philosophy that can be considered by the researcher for the performance of the study; interpretevism and positivism (Walter and Andersen, 2013) In the interpretive philosophy outcome are understood which are connected with human behaviour instead of generalizing it. On the other side, the positivism philosophy completely depends on the optimistic facts and ideas and it depends on the notion that globe is external and single objectivity is available to facilitate investigation process. For the current study based on the analysis of profitability margin of home bargain that how its beating or gaining the enough profit compared to their competitors in this present market positivism philosophy will be used. The main reason for selecting this philosophy is that it will further help in focusing on facts and causes of social phenomenon with less emphasis for subjective states of people, opinion etc (Stevenson, 2010)

3.2. Research design

The research design regards to total strategy that is selected to integrate varied components of the study in a coherent and logical manner so as to obtain the outcomes of the research problem. The research design can be referred as blueprint for the gathering, evaluation and analysis of data. There are various kinds of research design that can be considered by the researcher, descriptive, exploratory and case study (Singh. 2010). The descriptive research design is used to show the participant in exact way. It is used to create theories, ascertain issues with present practices,justify present action and make conclusion. On the other hand, exploratory research is kind of study that is performed for specific issues that is not clearly stated. Thereafter, case study is detailed examination of specific state instead of statistical survey. In the present research, descriptive research design will be used as it will assist in generating response to questions like, who, where, how,what and when which are related with specific research problem (Silverman, 2016) The descriptive research design will help in showcasing the participants in actual manner.

3.3. Research approach

The research approach regards to notion of researcher with the aid of which investigation can be performed out in best possible way. There are different types of research approach that can be considered for the present study; inductive and deductive. The inductive approach is one where consideration is on creation of new theory emerging from the data. Here, the researcher mover from specific observation to wider generalization and theories. On the other hand, deductive research approach consists of logical declaration from the identified facts. Here, research moves from general to specific (Billig and Waterman, 2014). In ty he present research, deductive research approach will be used as it provide more direct results in less time.

3.4. Research Type

It can be stated as kind of study that is performed by the investigator so as to determine the selection of different tools and techniques. There are two types of study that can be performed by the company; qualitative and quantitative.

The quantitative research is one where concern of investigator is on presenting the data in numeric form. It further involve use of statistical,mathematical and numerical assessment of dataRetail sales in UK, 2016. [gathered by using surveys, questionnaire, feedback forms etc. therefore,it involve application of SPSS etc. On the other side, in qualitative research, data is presented in non numeric form. Therefore, the unstructured data is gathered through use of interviews, focus groups, observation etc (Walter and Andersen, 2013). The objective of quantitative data is to discover facts regarding social phenomenon while, qualitative data is based on understanding human conduct from the informants perspective .In the present study qualitative research types will be used to arrive at the outcomes of research questions. Therefore, Qualitative research will help in obtaining information regarding the perception of the respondent, managers. The qualitative data is more reliable and can be used to attainthe objectives of the research.

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3.5. Data collection method

It refers to method that will be used by the researcher for gathering, measuring data on prospective variables in a developed fashion which then assist to obtain answers for specific questions. There are mainly two sources that can be used by the research for collecting the data, primary and secondary. The primary sources refers to first hand information that is collected for the first time (Singh. 2010).. Therefore, data gathered through questionnaire, interviews, polls and observation etc. The secondary data is one which is used before. This data is obtained from books, journals, online articles, newspapers etc. In the present study, based on the analysis of the profitability margin of home bargain that how its beating or gaining the enough profit compared to their competitors in this present market both primary and secondary resources can be used for data collection. Therefore, both new and avail able information can be analysed to understand the main fact ors that support in improving the profitability position of the ompany.

3.6. Data analysis

It is method of systematic application of statistical and logical techniques to describe and showcase, and assess the data. It can also be stated as method of examining, improving, transforming and modelling data with the objective of discovering necessary content, recommending conclusion and facilitating decision making process. In order to analyse the obtained information related to the research, qualitative and quantitative techniques can be used. In qualitative data analysis method contrasting themes are defined for analysing information where data is showcased in non numeric form (Stevenson, 2010). Therefore, no statistical instrument are used for the objective of data analysis. On the other side, in quantitative technique numerical information is analysed with the assistance of statistical tools such as mean, mode and median. This technique is reasoned to be extremely efficacious and leads to foreseen outcomes. In the present research, the data will be analysed by developing themes on the outcomes of the available information.

3.7. Sampling

The sampling can be regarded as important part of the study where respondents are chosen for the purpose of collecting data from the study. A choice right respondent according to the quality of research is quite important where it positively impacts the total study. In each kind of research it is essential for researcher to assure whether sample size selected is proper in assemblage reliable information or not (Billig and Waterman, 2014).. Broadly sampling method are separate into two parts which takes into thought both probabilistic and non probabilistic method. By fulfil subset in the presented set of population captious elements connected with the investigation can be formulated easily and in correct manner.???/In probability sampling method every component part in the acknowledged set of population has equivalent possibiliProfitability in Supermarket industry.2016ty of being chosen and it proceeds large amount of methods which are stratified or cluster, systematic, simple random etc. other than this, in case of non probability random sample technique few components are easily existing in the presented set of population and whole chance of being chosen is not existing and such technique involve quota, convenience, snowbowling ??? and so on. For the present study based on the analyse of the profitability margin of home bargain that how its beating or gaining the enough profit compared to there sp competitors in this present market, data will be collected through probabilistic method. why Further therein, random sampling method will be used where every individual have equal chance of getting selected in a sample. Thereafter, sample size refers to act of selecting the number of respondents that will be involved in the study. Here, in the research sample size of 20 managers because too big sample size makes it complicated to analzye the data. of the Home bargains will be selected from obtaining information regarding how the profitability margin of their company is more than its rivals.

3.8. Validity and reliability

In order to perform the study, it is important for researcher to use appropriate tools and techniques. The term validity refers to the quality of being logically and factually sound. It further determines the level to which the study meets the actual objectives. There are tow kinds of validity, internal and external. The internal validity regards to how effective an experiment is performed. The main concern is to determine whether the research was done right or not. On the other side, external validity details out the level to which the outcomes of the study can be generalized to other stated and to other individuals. Thereafter, reliability is other aspect that state that data must be taken from authentic and trustworthy sources. it further determine level to which stable and accordant outcomes and provided in study. In the present research, the consideration will be given on both reliability and validity of the study.

3.9. Ethical consideration

In order to conclude the study in true sense and overall aspect, it is important for the researcher to have strong focus on maintaining the ethical consideration. Therefore, the study must be morally right. Thus, researcher must assure data is not copied from any other sources so as to avoid the issue of plagiarism. It is also crucial to assure that there is no kind of manipulations of the data. The information must be presented in true form. To maintain ethics od the study, it is viable for the researcher to maintain the confidentiality of the respondent. Therefore, personal information of the respondent must not be presented without the permission. Thereafter, respondent must not be compelled to take part in the study. In addition to this, correct citation of the works of different intellect must be done by the investigator in the right way.

References

  • Akçay, Y., Boyacı, T. and Zhang, D., 2013. Selling with Money‐Back Guarantees: The Impact on Prices, Quantities, and Retail Profitability.Production and Operations Management, 22(4), pp.777-791.
  • Anderson, E.W., Fornell, C. and Lehmann, D.R., 2004. Customer satisfaction, market share, and profitability: Findings from Sweden. The Journal of Marketing, pp.53-66.
  • Anderson, E.W., Fornell, C. and Rust, R.T., 2007. Customer satisfaction, productivity, and profitability: Differences between goods and services.Marketing science, 16(2), pp.129-145.
  • Billig, S.H. and Waterman, A.S. eds., 2014. Studying service-learning: Innovations in education research methodology. Routledge.
  • Billig, S.H. and Waterman, A.S. eds., 2014. Studying service-learning: Innovations in education research methodology. Routledge.
  • Christine, D., Devie, W. and Tarigan, J., 2015. The Impact of Employee Satisfaction on Profitability in Fashion Retail Business in Indonesia. World Applied Sciences Journal, 33(9), pp.1533-1538.
  • Ellram, L.M., La Londe, B.J. and Weber, M.M., 2013. Retail logistics.International Journal ofRetail sales in UK, 2016. [ Physical Distribution & Logistics Management.
  • Gouldson, A. and Sullivan, R., 2014. UnderstandingProfitability in Supermarket industry. 2016 theRetail sales in UK, 2016. [ governance of corporations: an examination of the factors shaping UK supermarket strategies on climate change. Environment and Planning A, 46(12), pp.2972-2990.
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