6. Then evaluate to scale the marks!
• Before you can evaluate you must analyse!
• Evaluate each argument as it is introduced
• Develop clear chains of reasoning
• Make 3 references to data in the question
• Outline relevant theory, using a diagram
• Develop one point per paragraph (no more)
• Remember to come to a ‘final judgement’
9. Background
Tesco
• Leading UK retailer with food market share of 31%
• Trading profit for 2012 expected to be around £4bn
Sainsburys
• Pre-tax profit of £700m in the last year
Asda / Walmart
• UK’s second biggest supermarket group
• Acquired Netto for £750m in 2011
WM Morrison
• Annual sales of £17.7bn
• Pre-tax profits of £947m
10.
11. Cost factors affecting profit margins
Labour
Costs
Store
Logistics
rents
Supplier Economies
prices of scale
12. Cost factors affecting profit margins
Labour Wages,
Costs Productivity
Store
Logistics
rents
Supplier Economies
prices of scale
13. Cost factors affecting profit margins
Labour Wages,
Costs Productivity
Store
Logistics
rents
Town
centre, Out of
town
Supplier Economies
prices of scale
14. Cost factors affecting profit margins
Labour Wages,
Costs Productivity
Store
Logistics
rents
Town
centre, Out of
town
Internal,
Supplier Economies External
prices of scale
15. Cost factors affecting profit margins
Labour Wages,
Costs Productivity
Store
Logistics
rents
Town
centre, Out of
town
Food suppliers,
Non-food
producers Internal,
Supplier Economies External
prices of scale
16. Cost factors affecting profit margins
Supply chain Labour Wages,
efficiency, tran
sport costs Costs Productivity
Store
Logistics
rents
Town
centre, Out of
town
Food suppliers,
Non-food
producers Internal,
Supplier Economies External
prices of scale
17. Demand-side factors affecting profits
Competition Economic Pricing
• Deep discounters situation strategies
Lidl and Aldi • Consumer • Price
• Local monopoly confidence discrimination
power increases • Real incomes • Own label products
pricing power
• Disposable • Premium products
• Regulatory incomes
intervention
19. Product differentiation boosts
revenues and supermarket profits
Price Price
Premium
products -
P1 low Ped
MC
AR
MR
Q1 Output (Q)
20. Product differentiation boosts
revenues and supermarket profits
Price Price
Premium
Economy – value products
products -
P1 (lower marginal cost and a
low Ped
higher Ped)
P2
AR
MC MC
AR MR
MR
Q1 Output (Q) Q2 Output (Q)
21.
22. Building the evaluation
Market power / competition
• Leading 4 supermarkets > 80% of UK food retail (oligopoly)
• Huge buying power in product & factor markets
Economies of scale
• Scale drives down unit costs and boosts profits
• Supermarkets claim this improves consumer welfare
Overseas expansion
• Increasing flow of revenue and profits from overseas especially Eastern EU
Recession and recovery
• Downturn has hit supermarket profits
• Move away from bulk-purchase offers as consumers too poor to afford them
23. Tutor2u
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