Porters 5 Forces and Pestle Analysis in Grocery Retail free essay sample

Rimi Hypermarket, Rimi Supermarket and discounter Supernetto. Rimi has experienced a difficult time over the past 24 months with total group sales down -6. 2% in the 1st quarter of 2009. Rimi Latvia experienced a decline of -4. 3%. This is despite showing full YOY group growth of 13%. The effect of Europes hardest recession hit economy is taking place. A response to this has been to open more stores (238 in 2009 versus 21 5 in 2008) and focus growth in Estonia, where they ave previously underperformed. Rimis pricing strategy is EDLP, and uses economy of scales from stocking its hypermarkets to keep prices low. 49% of Rimi Baltics turnover in 2008 was in Latvia, and for the purpose of this analysis, determining whether Rimi Baltic to should expand as a discount grocer into the I-JK, the country of Latvia will be used as a main point of reference. PEST Analysis Political: In recent history the two most significant dates in Latvias political evolvement have been 1991 and 2004. Both have impacted greatly on forming Latvias political tanding 1991 Latvia gain full independence from Russia and establish itself as a democratic republic. The sovereign power belongs to the people, whom are represented by a unicameral parliament, known in their native language as the Saeima (The Parliament). The Saeima elect the President (Valdis Zatlers) every 4 years and also the Prime Minister (Valdis Dombrovskis) There are no restrictions on week but most trade between 8am and 10pm (2). Limitless trading hours enable Rimi Baltic to tailor its opening hours to suit the demand in each supermarkets locale. I. e. Riga, the capital city, where 32. 3% of the population reside(l) may have stores open 24 hours Latvia Joined the EIJ in 2004. Whilst EIJ membership succeeded in turning a moderately ticking post-communist economy into a booming engine (3) is also provided fuel for the effect of the global financial storm that was to follow Economic: Between 2002 and 2006 GDP growth went from 6. 5% to 12. 2%(4). Latvians were ill prepared for such rapid increase in domestic wealth. As a result of not focusing extra revenue into export capacity (instead loans and cheap credit went into construction o meet the new greed for property), Latvia is now in Europes 2nd deepest recession after Lithuania In the early 1990s whilst Latvia was still under Soviet rule, the homogenous population had little or no experience with monetary issues such as banking, handling credit or investment and no-one owned property(3) It took until mid to late 90s for the country to develop into a viable proposition for grocery expansion and by 1999 Rimi Baltic had established itself in all 3 Baltic States with its By 2005, post EIJ membership, when 1st store opening in Latvia in 1997 nvestment in the country was high and the economy booming, Latvians could buy almost anything on credit. An increase in wages combined with easy lending resulted in a new desire to own property. This strengthened the Latvians confidence and boosted morale and spending Farmers were amongst those who capitalised on easy borrowing in 2005. However, one of the consequences of the recession was a drop in the price of grain and milk, and many farmers were left with huge debt 3 key factors affected by the cut in spending which will adversely affect the growth of Rimi Baltic: . Due toa declining population Latvia has a high mean age, therefore a 10% cut in pensions announced in June 2009 will impact on the spending abilities of the older generation. 2. Spending has been cut in education, medicine and social work, helping drive rising unemployment. 1 in 5 Latvians are now out of work, the highest in EIJ(5) 3. These sectors traditionally employ more women (5). A reduction in the number of working women will result in more having to stay at home. Less income combined with more time for self sufficiency in the home will result in less spend on groceries Ђ High inflation in 2008 has resulted in the price of food increasing and a recent survey (6) indicated that 38% of Latvians planned on buying cheaper products. This will help Rimi Baltic with its policy of EDLP Social: The social structure of Latvias 2. million population is divided between urban and rural areas. Although 68% of the population live in urban areas (a third of them in the capital, Riga) (7) and 32% rurally, the rural way of life still dominates culture. Many single family household families live isolated lives rather than collectively in villages. An implication of t his on Rimi is the importance of location. Stores must be frequent than if a local top up shop store were accessible, availability and meeting demand in store is vital As a response to the recession, self sufficiency will increase in necessity; however this has always been inherent to the Latvian way of life. Fruit and vegetables are grown on homesteads and used to make Jam, pickles and fruit Juice. As a consequence, these areas of grocery shopping require less focus than other core requirements such as toiletries or household products Despite continued popularity, open air markets have been gradually replaced with shopping entres as the country continues to develop Western shopping habits. Rimi operates in 16 shopping centres in Latvia to date(l). A recent study by On Point (see fgure 5)(8) identified Latvia as a country underdeveloped in shopping centres. It also indicated that the country has low growth prospect for shopping centres suggesting this may be a restricted area of growth for Rimi. Technological: Latvias history with technology and RD has been well founded since the Soviet era when the country established many development centres including those involved with the Soviet space programme Ђ The development of food technology in Latvia has managed to enhance the opportunities home grown products has given the industry 1 . lecavnieks are a company who have developed domestically harvested oil and seed products. They currently supply rapeseed, linseed and hemp products to every supermarket in Latvia 2. Satori Alfa commissioned specially designed equipment to process the sea-buckthorn berry, a native berry found along the coastline. It is popular in folk remedies, medicinal creams and also a Juice drink. A hybrid of the berry has been developed to meet demand 3. Pure Foods are a ruit and berry processing plant that have also developed hybrids to improve yields of fruit trees and berry shrubs.