United Co-operative Products (UCP) was formed in 1915 as a co-operative shop network owned by farmers in the country of Zatolia. It progressively opened small shops across the country selling products produced by Zatolia farmers. Overtime its expanding network of shops began to offer non-farming products from a wide range of suppliers, but it has remained true to its co-operative roots. All employees are shareholders and receive annual dividends. Customers can also become shareholders and are rewarded with dividends which reflect the value of their spending in the shops. An increasing number of customers are becoming shareholders, reflecting a renewed interest in the country in mutual organisations, such as co-operatives. UCP only operates in Zatolia and it has no plans to expand overseas. Zatolia itself is a wealthy, industrialised country which continues to grow.

The purpose of UCP’s existence is to be a successful co operative business by:
 Providing the widest possible range of services for its members
 Maintaining quality, value and ethical principles
 Building for the future by generating profits to develop services, pay dividends to members and support local communities
 Encouraging customers to become members and to be involved in running their society
 Developing the skills our staff need, to help achieve our mission
Supermarkets in Zatolia
When supermarkets were first introduced in Zatolia, UCP reflected this trend by opening its own supermarkets. However, its supermarkets tended to be (and continue to be) smaller than its well-known competitors and its network of smaller shops was largely retained. In contrast, other supermarkets focused on developing large out-of-town sites serving a large catchment population. In the top-ten supermarkets of Zatolia, only UCP has, in addition, a network of smaller shops.

In 2010 UCP was the eighth largest shop and supermarket chain in Zatolia. It reported revenues of $10bn, compared to the $40·5bn revenue of the market leader, TypCo. By 2016, UCP was the ninth largest shop and supermarket chain in the country, with revenues of $11bn, compared with TypCo’s $45bn. During this period, two new supermarket chains have entered the Zatolia market. These two new entrants, Multie and Simple, already have a combined revenue of $50bn and are fourth and eighth respectively in the top ten Zatalia supermarket chains. Both of these companies are overseas-based supermarkets operating a no-frills approach to retailing. Overall, the revenue of the top ten supermarket chains has increased from $300bn to $350bn in the last five years.

Margins in the sector are always under pressure and the large supermarkets continue to aggressively market their goods, highlighting price savings. They also provide customer incentives, such as loyalty cards and account discount schemes in an attempt to retain customers. For many products and services, price comparison websites show consumers the prices charged by competing supermarkets.

With the exception of UCP, all supermarkets are quoted companies with their shares largely owned by institutional investors who look for significant dividends and capital appreciation. UCP is the only co-operative in the top ten Zatalia supermarket chains. Generally, suppliers to supermarkets are relatively small companies. Supermarkets’ control of consumer spending is so great that many suppliers aggressively compete to have their products stocked by the supermarket chains.

UCP has continued to promote and follow its ethical principles. It ensures that new shops and supermarkets are energy efficient. It also continues to pay its employees significantly more than its competitors. This concern for its employees’ welfare appears to lead to excellent customer service performance. For example, in a recent independent survey of supermarket customers, UCP was ranked first for personal customer service.

Management at UCP

Management at UCP is aware that the company has certain weaknesses. For example, it acknowledges that it needs to streamline its supply chain and achieve cost savings. It also recognises that it has failed to exploit technological advances in product control, movement and storage. However, before making changes, the management wishes to better understand the strategic position of UCP and the models used to assess this position. It has asked for a report which includes:

•An explanation of the purpose and value of PESTEL analysis and Porter’s five forces framework.
•An analysis which identifies external factors from the perspective of four elements of the PESTEL analysis: political, sociocultural, environmental and legal.
•An analysis of the market place using Porter’s five forces framework.
•The potential role of critical success factors (CSFs) and key performance indicators (KPIs) on formulating and monitoring strategy at UCP. The company does not currently use such concepts.

Attitude of Zatalians towards supermarkets

There is increased evidence that shoppers are becoming disillusioned with supermarkets and yearn to return to the days when shops were smaller and service more personal. Fiona McLean, of the department of sociology at Salisbury University, says that, ‘our research suggests that there is a significant number of consumers, commonly called green consumers, who are increasingly concerned about the environmental impact of food and other products that they are purchasing. This is not only in terms of the excessive and elaborate packaging of the goods, but also in terms of the ‘food miles’ that the product has travelled before it reaches the shelves of the shop or supermarket.’

In general, these green consumers have higher than average disposable income and they are prepared to pay a price premium for products which have been ethically sourced. Fiona also suggested that such consumers are part of a group who are increasingly angered by what they consider as the excessive profits of the large supermarket chains, the high remuneration packages paid to senior management and the large dividends paid to their institutional shareholders. ‘There is a feeling that supermarkets are run by fat-cat managers, exploiting small suppliers to reduce costs to create a margin for dividends that pacify demanding institutional investors’, she said.

Even the newer entrants, Multie and Simple, are under threat. There is a consumer reaction against these overseas-based supermarkets which have followed a low-cost, no frills approach, with shelves stacked intensively with low priced products and where customer service is both impersonal and kept to a minimum. The low wages paid to staff in these supermarkets is also an issue for the green consumer.

Zatalia government information sheet 6001 (extract)

Disability legislation (The Access Act)

The recent extension of disability access legislation requires shops and supermarkets to help all disabled customers to access all shelf areas within the store. The previous legislation just required shops and supermarkets to provide disability access to the store areas. However, many disabled customers found that goods were out of reach when they were actually in the store. This extension to the legislation addresses this issue. So, for example, all products held within the store must be reachable for a person who is in a wheelchair and, if not, a store attendant must help. Failure to adhere to this legislation will lead to a fine of up to $1,000 per incident.

Pension reform

The new government recognises that the current state funded schemes will lead to a significant pension shortfall in the future. Consequently, it has declared its intentions to make it mandatory for employees to pay 5% of their gross pay into a pension scheme of their choice. The amount paid in will be matched by that paid in by the employer. So, for example, an employee earning $10,000 per year will pay $500 per year into his or her pension fund and the employer will also be required to pay $500 per year into the same fund. It proposes that the employer will be responsible for ensuring that pension payments are correctly made into government authorised schemes and to accurately process these payments, through automatic payroll deductions, every month. These proposals for pension reform are currently under discussion.

Required:

Write the report required by UCP management which:

(a) Suggests a mission statement for UCP

(b) Analyses external factors from the perspective of four elements of the PESTEL analysis: political, sociocultural, environmental and legal. The analysis should include an assessment of the likely effect of such factors in the context of the strengths and weaknesses of UCP. It should also include an explanation of the purpose and value of a PESTEL analysis.
(c) Evaluates the potential role of CSFs and KPIs in setting and monitoring strategy within UCP.

Professional marks will be awarded for the structure, coherence, style and clarity of the report. References are to be written in the Harvard referencing style.

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