The Factors Of The Retail Industry Commerce Essay


The retail industry is an industry at the sharp end. Vigorous and relentlessly changing, it is a milieu where only the most inventive organisations can be successful (courses-careers, 2010). However, the UK retail industry employs over 3 million people and this accounts for 11% of the total workforce. However this is likely to rise over the next five years by an average of 15%. Still this represents a decrease of yearly growth and with operational costs and with the increase in the cost of credit, the retail sector faces challenging times. organisation who are unable to operate effectively and efficiently will suffer (UK Retail Futures 2011: Sector Summary, Datamonitor), hence organisations have to continuously scan and monitor the market, to spot new developments and constantly keep up with customer expectations (business- teacher, 2009) in order to "defeat the enemy", (Sun Tzu, 1997).

However in this vigorous environment, there are organisations which remain competitive one such pioneering company is Iceland, through its product innovation has found a specialist niche. According to (Malcolm Walker), the organisation built its reputation on offering value, and majors on the excellence and consistency of frozen food packaging and distribution,

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Consequently, this project will seek to;

Assess the primary internal and external influences to which Iceland is subject

Analyse how a change in technology has influenced policies and decision making in Iceland and critically evaluate the its responses

Background of Models

In today's gung ho business environment, the effective use of resources is critical. Organisations have to constantly analyse the "Environment". According to (Handy, 1991) the environment is the world, in which the organisation exists, thorough analysis is important because it impact on the strategical planning process of the organisation. According to Porter, the organisation must always seek an "environmental fit", through the exploitation of opportunities and blocking of threats, taking into consideration the internal capabilities, thus this enables the organisation to maximise its competitive position (Robson, 1997).

Internal analysis focuses on characteristics that will either allow an organisation to meet existing or future customer needs better than competitors.

Michael E. Porter introduced the concept of the value chain. He believed that an organisation strategy should focus resources on those parts of the value chain from which majority of the value comes and reduce or outsource those parts that contribute little value. He believed that the organisation should be divided into 'primary activities' and 'support activities', which he believed can work together successfully to enable superior competitive advantage (Recklies, 2001).

Shepherd (1998), supported Porter in his view, he believed that the value chain analysis concept is useful when the accurate data is available within limited resources.

However, this is elegant in theory but time-consuming in practice (Macmillan and Tampoe, 2000). In addition, it excludes other assumptions such as customer relationship in Alexander Hax's delta model (Proven model, 2010) which equally contributes to competitive advantage.

On contrary to Porter, Bruce Henderson developed the Boston Consulting Group matrix in 1968; he believed that in order to ensure long-term value creation a company should have a portfolio of products that contains both high- growth products in need of cash and inputs and low- growth products that generate a lot of cash. The basic principle is that the higher the market share a product has the better it is for the organisation (Stern and Stalk, 2009).

Portfolio analysis is a concept that enjoyed much recognition in the 1970s but has since been criticised (Macmillan and Tampoe, 2000), First, for being naive and second, for ignoring other factors that contribute to profitability (Netmba, 2007). However, later developments such as GE- Mckinsey was used to overcome these issues for instance with the lack of reliable industry data, the fact that BCG deals mainly with goods not Strategic Business Units and that cash flow is often a more reliable source to measure performance rather than market growth or share.

Conversely external environment analysis is used to understand what may affect the future of the organisation from which it has no control but potentially can affect strategy.

Kotler, 1998 stated that the PEST framework is an important management tool for understanding the market, business opportunities and the threats that exists. This analysis also enables an organisation to develop more informed strategies (The Times 100).

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Michael Porter took an unconventional view, he claimed that there are five forces that affect a company and by studying the dynamism between these forces and the organisation would discover opportunities to increase profitability. Larry Downes criticised Porter, he claimed that these assumptions made by Porter are no longer workable. He identifies three new forces that require a new model; they are "digitalisation, globalisation, and deregulation."

Although there are many critiques of Porter five forces, his work still has an important place in the positioning school which sees the fundamental role of strategy as positioning the organisation for the future (Macmillan and Tampoe, 2000).

According to Adam (2005), there must be a swot analysis in order for there to be an alignment between the organisationHYPERLINK ""'HYPERLINK ""s strategies and the environment in which it operates.

However a SWOT or TOWS matrix as it is sometimes called is criticised for being too subjective, and is it best used as a guide and not a remedy.

The internal and external influence which will always impact on the organisational behavior, however, one important influence that needs to be considered is information technology. According to Fubini's law "People initially use new technologies to do what they already do - only better."

Conversely, Technology is the synthetic enrichment of human power. The shrewdness and flexibility of our machines have caused societal pandemonium and economic dormancy (Philip Atkinson, Technology Making It Worse).


An analysis Iceland was done using secondary research methods. Secondary analysis is analysis of data by researchers who will probably not have been involved in the collection of those data, for the purposes that in all likelihood were not envisaged by those responsible for the data collection (Dale, Arber and Proctor, 1988). However, the secondary sources used were journal articles text books, websites, annual reports, press releases, newspaper clippings and other studies.

Secondary analysis offered many benefits such as, it saved time and money and moreover a network of data was readily available.

However secondary research analysis is not without its shortcomings, first, information on the research topic was only available to a small extent Also, some data was of questionable accuracy and reliability and furthermore the data was several years old and did not reflect the current market conditions.

The researcher is aware that secondary and primary research should be undertaken simultaneously so that the project to be more reliable, replicable and valid but because of time constraints this was not possible. Nonetheless this does not take away from the high quality of data readily available but it was used with caution.

Iceland - Overview.

"So that's why mums go to Iceland!" (Iceland)

Iceland is one of Britain's fastest-growing retailers with over 750 stores throughout the UK.  It was established by Malcolm Walker and partners in 1970, with its headquarters in Deeside.

It focuses on value-for-money frozen food. Iceland has many promotional strategies like its bonus card that offers a range of benefits to customers

Iceland has supported many charities, developed products that are in line with healthy eating as part of its corporate social responsibility policy

Through its product innovation and creativity sale increased steadily over the years.

"March 2010 profits are expected to be over £180 million." explained Malcolm Walker.

See figure 1 in appendix for full overview of the organisation.

An internal analysis of Iceland using, Porters' value chain analysis.

To better understand how value is created the organisation is divided into chain of activities,

Diagram: (

Primary activities

Inbound logistics: Since 2005, Iceland has outsourced the management of its warehousing and distribution to DHL Supply Chain, they are responsible for making sure that demand is handled effectively and efficiently, most DHL warehousing activities are located in close proximity to the majority of store in the south of England. "Through enhancements in warehouse, efficiency, and scheduling, and oil efficiency schemes, Iceland saved £4m in operating cost (DHL Outsourced Logistics, Iceland). Hence value is created through cost focus strategies as identified by (Porter competitive strategy).

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Operations: At this stage the organisation uses forecasting techniques and stratification strategies for scheduling the flow of goods in and out of the depots and store replenishment. Stratifying stores helps to ensure that goods are always available to meet demand; this is in line with the Just in time method of stock control which eliminates cost associated with stock out. Also Iceland mainly focuses on of its core frozen foods retail operation as a result of its high experience curve cost is reduced hence economies of scale is achieved. To reduce cost further the company minimises its packaging by joining WRAP (the Waste and Resources Action Programme), and every year cardboards are collected and plastic from its stores and depots for recycling (Iceland).

Outbound logistics: delivery vehicles are fitted with speed-limiters and automatic engine shut-off when idling, also more efficient technologies such as LPG (liquid petroleum gas) is also used to reduce fuel consumption.

In addition, Iceland has worked with many consultants in order gained insights into areas such as delivery, retail, marketing or merchandising in order to develop and adopt the right strategies, marketing or product mix. The organisation also employs the use of "OCS Inventory and Audit Service" to ensure that there is correct, objective and constant examinations of supply including performance measurement of third party logistics suppliers against agreed service levels, it uses a series of monitoring and superior tracking software, in this case the kaizen method of production is employed which believes that there should always be continuous improvements and cost-savings which enables the organisation to reduce cost of defects hence a reduction in cost which in turn creates value. (OCS Retail Support: Inventory and Audit),

Marketing and Sales: Iceland uses Portal tech's Stripey Lines, this application allows customers to make price comparison by swiping barcode of products, also these goods can be saved and profiles built which could be researched and evaluated later (Stripey lines)

because it is a plug-in extension to the existing Information Technology, time and resources are not wasted learning about a new technology.

Additionally Iceland has Bonus Card, which offers customers many benefits offering shoppers its "Win, Save and Deliver" benefits The application of these new technology and software, improves business performance and enhance better customer relationship marketing hence customer loyalty (Iceland).

Services: The Bonus card introduced by Iceland entitles the customers free home delivery service within 24 hours of purchase, this creates convenience for customer hence value is created and they are encouraged to shop at Iceland.

Iceland also offers an easy way of saving with its free bonus stamps you can top up your saving at anytime and redeemed at any time, if you save £29 then you are given a top up of £1, as a result customer are encourage to save and this also help to build brand image.

Support Activities

Procurement: This department sources raw material from suppliers at a minimum price, food that are not genetically modified. More importantly Iceland has established a good relationship with suppliers in order to ensure that quality is always delivered to the consumers, this relationship creates value to the organisation because customers always receives value for money in terms of quality and food safety hence increase sale for Iceland and increase orders from supplier.

Technology development: Technology is used in every part of the business process in order to effectively manage its logistics, reduce cost and hence offers value the customer. Iceland has an Information Technology services deal with Getronics costing more than £11.5m, the organisation believes that this strategy would reduce cost and create value.

Human resource management: Iceland designed "The VIP (Very Iceland Person) scheme" this is to identify and support talented and ambitious people at all levels by creating personal growth plans and providing assistance on how to realise their dreams. Staffs at all levels are encouraged to put forward ideas via the regular works councils, known as Talking Shops. Employees have a high degree of autonomy and responsibility, matched by accountability for results. (Iceland: Brain Stop Employers).

Also, "the entire organisation has access to "Asperity Employee Benefits," this gives benefits such as discounted shopping, discounted and free gift vouchers, insurance benefits, vacation, savings and movies packages" explained (Malcolm Walker), it is evident that the company has employed theories of motivation by Abraham Maslow "hierarchy of needs", and Frederick Herzberg "Hygiene factors and Motivators", thus these benefits encourages employees go the extra mile", hence productivity increases and cost is reduced.

Firm infrastructure: The organisation has a 'Lean Head Office' team which focuses on retailing and believes in excellence, not bureaucracy. This approach is a Japanese style of management which centres on eliminating waste, while ensuring quality. There is a strong informal culture; where decision making is faster. The organisation has a strong financial structure, coupled with its management structure it works effectively and helps the organisation to grow and enable employees to fulfil the self actualization needs such as recognition.

The value chain analysis of Iceland is very helping in identifying the organisations' core competences and the activities that is employed in order to gain competitive advantage. Iceland has achieved cost through high experience curve, capacity utilization and efficient linkages among activates and differentiation advantages through the procurement of unique inputs.

An external analysis of Iceland; using the five forces model

The five forces is a strategic tool introduced by Michael Porter to analyse the external environment. When an organisation understands these forces it enables them to devise appropriate strategies.

Diagram: (

The threat of the entry of new competitors

The retail industry is very attractive; the threat of entry is high because there are low barriers to entry. Business no longer need to have Block and Mortar in order to conduct business, Today entrant need only a website to enter a market, because there is common technology, also, there are easy access to distribution channels . The Government through it introduction of laws against monopoly and anti-competitive behavior hence this has made the retail sector more attractive to competitors.

In addition switching cost is very low. As a result of the current economic situation and the increase in unemployment, consumer has become more price sensitive, and is more likely to choose the cheapest goods where ever available. In order to gain competitive advantage at this stage Iceland should develop its brand and diversify into other related areas such as online shopping which makes it easier to target areas.

Competitive rivalry

Tesco and Sainsbury are Iceland's two major competitors; they compete using their own manufacturing farms to produce low cost products. Additionally these organisations are located in close proximity making it difficult for Iceland to sustain its customers. These companies also have online shopping, which creates convenience for the customers. According to Michael E. Porter at this, stage one of three strategies can be used they are differentiation, focus or cost leadership in order to gain competitive advantage. Iceland has adopted focus strategies targeting on busy moms and party planners, hence this strategy has contributed to increase in sale by 16% in the face of the recession. Also the organisation can vertically integrate this would lead to operational efficiencies and reduce cost further and thereby increase competitor pressure.

Bargaining Power of Suppliers

Iceland has an advantage over off license and smaller shops because of the large quantities of orders and the length of service, the organisation has as ability to negotiate prices.

Additionally, there is a low degree of differentiation of inputs needed and there lots of substitute inputs, thus if the suppliers disagree Iceland can switch easily to another supplier that is willing to accept the lower price, this mean bargaining power of suppliers are very weak and they have little power to influence buyers.

Bargaining Power of Buyers:

The bargaining powers of buyers are high because buyers can switch easily if prices are too high. Products are not unique or specialised as a result buyers can switch to another cheaper product easily because there are many substitutes available, at this stage organisation engage in constant price wars, which reduces margin

The threat of substitutes products or services

There is low switching cost because there are numerous substitutes from Tesco, Sainsbury or Asda which are equally of high quality for similar prices as a result this permits the organisation from increasing the price instead Iceland has constant price cut deals and other in store benefit to encourage customers to purchase their products. In this case demand is price elastic so Iceland has to always carry out price comparison so that they can always have a competitive price in order to remain attractive to consumers.

There are many other forces that affect the external environment that is not included in this analysis. Porter himself identified a possible sixth force as government intervention. However, the five forces analysis allows the organisation to formulate the appropriate strategies to be successful in the industry," (Thurlby, 1998).

Technology and Iceland

In 1999 Halkias stated that the key retailers are combining both offline and online services," The advent of new technology has changed the relationship between the organisation and its customers. Customers are seen as the source of prosperity for Iceland; consequently, they are embracing Information systems to improve their business processes, consequently the decision was made to introduced a bonus card which offered customers many benefits, this CRM strategy included the use of technology platform from Trillium Software. As a result of it implementation more accurate information was stored on customers, this enabled better relationship marketing which in turn created better customers experience.

Additionally critical data cleansing processes are used to handle simple postcode verification which removes duplication this reduces time wasting and ensure deliveries are made on time; as a result the operating profit has increased. Since its introduction IS representative meets regularly to discuss and discover ideas on how the technology can be enhanced to create value.

In order to gain competitive advantage organisation must reduce cost and create value. Iceland identified that the only way of reducing cost and creating value is through outsourcing as result the management of its warehousing and distribution facilities was outsourced to DHL; through the use of information systems, operating cost is lower as a result of the effective management of logistics.

According to (Pearson, Iceland) under the old system of payment, the way staff worked had to be planned ahead, because the information was not included into time sheets / payroll which caused wastage of time and resources as a result "a new system was introduced which enables hours to be planned and confirmed in the working week and is automatically fed into time sheets and the centralised payroll system. Now, stores can budget more effectively as there is real-time feedback on managing planned hours versus the actual hours worked," (Pearson, Iceland).

Iceland uses Portal tech's Stripey Lines, this application allows customers to swipe the barcodes to compare prices, this software makes it possible for customers to create a wish list which can be taken to the store, and as a result this creates convenience for customers. In additional this offers a variety of services, which builds brand value and establish retailer differentiation. As it's a plug-in addition to the existing web technology, there is no cost for training, time and resources not wasted learning about a new technology instead efforts are focused on areas of retailing utilising their core competences.

According to (Pearson) "Iceland uses highly modern software to extract information from its data warehouse; while data mining capabilities have been developed in-house using Microsoft's set of web application development technology to reduce cost." this in turn enabled efficient use of resources.

Finally, more efficient technologies such as LPG (liquid petroleum gas) are also used to reduce fuel consumption which in turn reduces the cost of transportation and hence a reduction in operating expenses which can in turn contribute to competitive advantage.

The development of internet has created vast opportunities for shoppers they have access to a variety of product and information with one click, hence organisation has to be innovate in order to attract consumers.


In conclusion, Iceland has a long history of success which resulted from innovation and creativity through focus strategies.

The organisation mainly focuses on frozen foods but these frozen foods are only as good as the freezer it is in.

Iceland is very competitive in the market place. Its strength lies in its convenient location, innovative nature and lean management systems. However their weaknesses are strong competitors with substitute products at competitive prices. Iceland's opportunities lies in their high experience curve, being food specialists but there are threats because competitors can duplicate products

Iceland has to ensure that it continuously re-invent itself in order to survive in the current environment climate. In order for their strategic direction the organisation has to scan and monitor the environment using of a combination of strategic tool such as PEST and SWOT , Michael Porter value chain or Five force analysis.

The organisation has invested time and resources into a variety of Management Information systems because they believe that this enables them to reduce cost, create competitive advanatge and create value for the final consumer.

In all, Iceland is seen as one of the fastest- growing food retailer in the United Kingdom "so that why mum go to Iceland".


For future growth strategies these recommend are made

Iceland can introduce the self check out system that allows customer to who are in a hurry to check out goods, this speed up the process and elimination of long queues, which sometimes create inconveniences for customers.

Iceland should further develop its brand by using penetration strategies. Also the organisation should undertake market analysis to discover gap in the market so that new opportunities which will increase share holder wealth through competitive advantage.

Also, the retail market is very saturated; as a result the company should engage in international business by using entry strategies such franchising, Licensing or Agent / distributors this enable the organisation to enter new markets without incurring additional cost.

More green marketing and more focus should be made on Corporate Social Responsibility, so a result this would build brand value.

The United Kingdom has an aging population; hence Iceland should focus on using its core competences to produce a variety of product for that specific target market. Product should be attractive and should include nutrients, supplements. As a result the organisation would enjoy first mover advantage hence increase in sales and shareholders' value.

Finally, Iceland can use experience curve to diversifying in related areas so that they could have a more balance portfolio which according to Boston Consulting Group Matrix by Bruce Henderson will create a balance cash flow thus the company would be more competitive amongst the big three Tesco, Asda and Sainsbury.


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