AQA
A2 Business
Studies
BUSS3 Strategies
for Success
Revision
Workshop
Student Name:
Note the resource download link for this workshop:
Truemans plc is the UK’s fourth largest chain
of grocery supermarkets. Headquartered in
Sheffield, Truemans has a market share of
11%, well behind the market-leader Tesco
(28%). Truemans is a quoted company with
a market capitalisation of £4bn.
2 AQA A2 BUSS3 Revision Workshop
Kendra Takes Stock
The main strategic issues identified by Kendra during her initial review of
Truemans were:
• No online shopping capability, despite strong growth in UK Internet shopping
• Long-term decline in Truemans share price since the takeover
• A tall organisation hierarchy with decision-making largely centralised amongst
functional teams in Sheffield
• High levels of gearing and unacceptable returns on capital employed
• Falling sales in the face of intensive competition from discount supermarket
groups Aldi and Lidl – who have both indicated they wish to at least double
their market share in the UK
• Increasing numbers of price wars by all the major supermarkets as consumer
confidence remains weak in the UK
• Price deflation in the grocery market in the face of intensive competition,
with supermarkets increasingly looking to sell higher margin non-food items
The Trueman family still control 20% of the shares of the firm. A majority
of shares are held by institutional investors who have indicated to the Board that
they wish to see:
• A significant improvement in operating profit margin from the current level
• Stabilisation of Truemans’ market share and a long-term increase to
around 15%
• A substantial improvement in ROCE over the longer-term
• A more focused business with a clear growth strategy
www.tutor2u.net 3
Kendra’s Options
In summer 2014 Kendra commissioned strategy consultants Decant to report on the strategic
options that Truemans can consider in order to achieve its key corporate objectives. Kendra also
asked Board members to give their recommendations on operational strategies that might also
lead to better business performance.
A series of strategic and operational options have been identified which the Board will meet shortly
to consider. These are:
Key strategic recommendations from Decant:
Option A: Launch Online Retailing (see Appendix 1)
Truemans has been approached by Amazon UK who propose a joint venture to operate online retailing for
Truemans. The joint venture will see Amazon build and maintain an online shopping portal for Truemans with
deliveries picked and delivered locally by around 300 Truemans stores across the UK. A substantial IT systems
upgrade will be required by Truemans to be able to support online retailing.
Option B: Sell Truemans Food Manufacturing Division (see Appendix 2)
Trueman’s is unique amongst major supermarkets in operating its own manufacturing plants supplying a wide
range of its food products, including most of the own-label ranges. The Food Manufacturing division also supplies
a number of convenience store chains in the UK. Decant have suggested that Truemans should put the Food
Manufacturing Division up for sale to allow the business to focus on its core retailing activities.
Option C: Launch Foodland Local – A New Discount, Convenience Grocery Chain (see Appendix 3)
In recent years, Truemans has struggled to compete with the emergence of discount supermarket chains such as
Aldi and Lidl as well as a change in consumer preferences. Customers are increasingly buying bulk items using
online shopping and then topping up their shopping with visits to local convenience stores.
Decant have proposed that Truemans launches an entirely new retail chain named Foodland Local that is
designed to take on convenience store and discount supermarket competitors head-on. An objective of 1,000
Foodland Local stores by 2018 has been suggested.
Key operational recommendations from Board Directors
The Board will also consider the following recommendations made by members of the senior management team:
HMR Director Recommendation: A substantial delayering
programme that will see the removal of up to 3,000 head office,
regional and store personnel. The HRM team believe that this
will help Truemans implement greater decentralisation of
decision-making to individual stores.
Marketing Director Recommendation: Launch of a sustained
price-cutting promotional campaign designed to improve the
competitiveness of Truemans in the core grocery market. The
Marketing team believe that Trueman’s prices should at
least match Aldi and Lidl.
Operations Director Recommendation: The design,
development and launch of an innovative new range of
children’s and adult clothing to be sold from unproductive
space in Truemans’ larger superstores. The Operations team
are keen to significantly improve the productivity of Truemans
stores and reduce the reliance of the business on grocery
products. The clothing range will be own-label and have a
high gross margin.
4 AQA A2 BUSS3 Revision Workshop
Appendices
Appendix 1 Option A: Launch Online Retailing
The estimated investment and returns from launching online retailing through the joint
venture with Amazon are as follows:
Total cash investment
Expected annual profit share (cash inflow)
Forecast payback period
NPV of project returns at a 10% discount rate
Truemans
£200m
£75m
2.6 years
£85m
Amazon
£100m
£75m
Appendix 2 Option B: Sell Food Manufacturing Division
The key financial and operational data on the Food Manufacturing Division is as follows:
Factory capacity utilisation (%)
Revenues in 2014 (£bn)
Operating profit in 2014 (£bn)
Capital employed at December 2014 (£bn)
Employees (number)
Market capitalisation (£bn)
Estimated business disposal value (£bn)
Truemans
(whole company)
n/a
17.5
0.5
13.0
52,000
4.0
n/a
Food Manufacturing
Division
87%
5.0
0.1
3.0
10,000
n/a
2.0
Note: The capital employed by the Food Manufacturing division includes the value of freehold land
and buildings valued at £1.5bn.
One potential purchaser – Synergy Foods - has offered £2.0bn to buy the Food Manufacturing
Division. Synergy Foods is the UK’s largest producer of own-label food products and is a major
supplier to Tesco and Asda.
www.tutor2u.net 5
Appendix 3 Option C: Launch Foodland Local – A New Discount,
Convenience Grocery Chain
The key stages in this project have been identified as follows:
Task
A
B
C
D
E
F
G
H
Activity
Order
Conduct customer research
Design store concept
Identify product range
Identify & secure store locations for launch
Notify suppliers of requirements
Recruit store managers and staff
Fit-out new stores including IT systems
Open stores with promotional campaign
Starting activity
Begin when A complete
Begin when A complete
Begin when B complete
Begin when C complete
Begin when D complete
Begin when D complete
Begin when both F and G are complete
Duration
(months)
3
6
3
7
2
4
3
1
Foodland Local can be compared against certain key competitors in the UK convenience store
sector as follows:
Premier
Costcutter
Spar
Tesco Express
Foodland Local (by 2018)
Stores (number)
2,950
2,517
2,250
1,462
1,000
Convenience, discount and online are the three biggest
growth channels in UK grocery retailing. Many of the
larger multiple grocery chains are investing heavily in the
convenience sector, with nearly £12 billion in extra sales
forecast for this market between now and 2019. Small
independent retailers and “symbol” groups such as
Premier and Costcutter still account for 60% of
convenience store sales.
The convenience store market is highly fragmented and there are several potential takeover targets that
could provide an alternative way for Truemans to enter the sector.
Appendix 4: Financial Information
Key financial information about Truemans plc is as follows:
Revenues (£bn)
Operating profit (£bn)
Market capitalisation (31 Dec) £bn
Fixed assets – land and other property (£bn)
Current assets (£bn)
Inventories (£bn)
Current liabilities (£bn)
Total capital employed (£bn)
Gearing ratio (%)
Dividend yield
6 AQA A2 BUSS3 Revision Workshop
2013
18.0
1.5
5.0
8.3
1.3
0.7
2.3
12.0
50%
8%
2014
17.5
0.5
4.0
8.5
1.4
0.9
2.9
13.0
45%
10%
Appendix 5: Market Information
Some key information about the UK grocery supermarket sector is shown below:
Grocery
Stores
2,455
521
1,129
510
3,912
295
530
600
Competitor
Tesco
Asda
Sainsbury’s
Truemans
Co-operative Group
Waitrose
Aldi
Lidl
200
180
Market value in billion GBP
The value of sales
in the whole UK
grocery retail
market over the
last decade is
shown in the
chart:
Market Share
2013
2014
29.8%
28.7%
17.2%
17.2%
16.8%
16.4%
11.5%
11.1%
6.3%
6.2%
4.8%
5.1%
3.9%
4.9%
3.0%
3.5%
160
140
120
125
129
134
139
146
152
157
163
170
175
120
100
80
60
40
20
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Appendix 6: Retail Operations & HRM Information
Some key information about Retail Operations and HRM at Truemans are provided below:
Labour turnover (%)
Weekly sales per square ft. of space
Average age of store managers
% of sales from non-food products
Revenues per employee
Average span of control
Index of average price of weekly shopping basket
% of customers using loyalty card
Truemans
Retail Division
18%
£16
56yrs
7%
£320,000
8
102
4%
UK Supermarket
Average
41%
£20
46yrs
13%
£275,000
12
100
28%
www.tutor2u.net 7