A2 Evaluation Question on Supermarkets
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A2 Evaluation Question on Supermarkets
- 1. Evaluate the factors that affect the profitability of the major food retailers in the UK
- 3. An effective paragraph.. Makes 1 relevant point to an appropriate depth = 4 to 8 sentences
- 4. A2 Micro Success in A2 Micro requires you to be a mountain climber and ascend the Mark Schemes
- 5. Focus initially on KAA Knowledge Application Analysis
- 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’
- 7. Climb Evaluation Mountain!
- 8. Your aim for every question Mount EVA Mount KAA
- 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
- 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
- 18. Market power generates high profits Price, Cost MC AC P1 C1 AR MR Q1 Output (Q)
- 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)
- 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
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