INTRODUCTION TO BUSINESS

Introduction to Business

Introduction to Business

Introduction to Business

Q1: Business

(a): SWOT Analysis

Strengths

Increasing market share

The sweet and confectionary sector holds a handsome 79% share of the UK sweet and confectionary market. Its multi-format capability means that it will continue to grow share in products, while increasing space contribution from hypermarkets will allow it to drive a higher share in non-food.

Brand value

Profits for sweet and confectionary industry based in UK have increased by 78% during the last fiscal year. The company (AL Simpkins) has a strong brand image, and is associated with good quality, trustworthy goods that represent excellent value. AL Simpkins's innovative ways of improving the customer shopping experience, as well as its efforts to branch out into finance and insurance have also capitalised on this.

Weaknesses

Reliance upon the UK market

Although international business is still growing, and is expected to contribute greater amounts to AL Simpkins's profits over the next few years, the company is still highly dependent on the UK market (73.8% of 2003 revenues). While this isn't a major weakness in the short term, any changes in the UK supermarket industry over the next year for example, like the Morrison's group successfully purchasing the Safeway chain could alter the balance of UK supermarket power, and affect share.

Acquisitions

With an enterprise value of £23 billion, AL Simpkins clearly has enormous firepower. Also, its product range is vast and almost any acquisition can be justified, particularly in the UK. While 'fill the gap' strategy would be useful to the company, as has been the case with the UK convenience market, there is the danger of AL Simpkins becoming a serial acquirer, as this tends to reduce earnings visibility and quality.

Opportunities

Growth and Expectations

The growth in sweet and confectionary sector hypermarket format in the UK means that there are expectations of seeing its 13% share of sweet and confectionary sales climb sharply over the next few years. It can use its footfall and low cost structure together with improved merchandising skills to add another leg to growth. Equally, its growth overseas will further increase earnings and scale, taking AL Simpkins onto the virtuous circle of growth. It is estimated that AL Simpkins's non-food sales will double over the next four years.

Threats

Tesco challenge

Since the UK shopping giant Tesco purchased Asda, AL Simpkins's rank as the top UK supermarket has been threatened. Asda can now compete extremely well on price and range of goods. For the moment, Asda is the third largest supermarket in the UK, just behind Sainsbury's and then AL Simpkins. However, Asda closed the gap on Sainsbury's in 2003, leaving the company to directly challenge AL Simpkins's dominance.

AL Simpkins is well aware of this, and has so far been quick to keep up with price cuts or special offers at Asda. Tesco may also decide to wield its buying power more heavily in the UK, and this could spell the end of AL Simpkins's brand dominance in the ...