Porters 5 Forces and Pestle Analysis in Grocery Retail

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Unit 1 Assignment

Kelly Moore
December 2009

Should Rimi Baltic expand into the United Kingdom as a Discount Grocer?

Word Count: 2473

Rimi Baltic is the 2nd largest retailer in the Baltic States at 20.6% grocery share, behind VP Market who lead the market with 22.6% share (1). As a subsidiary of ICA Baltic AB (13.9% of sales), Rimi Baltic focussed its growth in Lithuania and Latvia, allowing period of underperforming in Estonia. After losing out to Kesko’s K-citymarket and Saastumarket, a merger between these two Estonian market leaders and Rimi Baltic took place in 2005. 238 stores now operate in all 3 Baltic States under 3 formats of the Rimi banner – 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 Europe’s hardest recession hit economy is taking place. A response to this has been to open more stores (238 in 2009 versus 215 in 2008) and focus growth in Estonia, where they have previously underperformed. Rimi’s pricing strategy is EDLP, and uses economy of scales from stocking its hypermarkets to keep prices low.

49% of Rimi Baltic’s 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 UK, the country of Latvia will be used as a main point of reference. PEST Analysis

In recent history the two most significant dates in Latvia’s political evolvement have been 1991 and 2004. Both have impacted greatly on forming Latvia’s political standing • 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 trading hours in Latvia. Supermarkets are free to open 24h hours a day, 7 days a 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 supermarket’s locale. I.e. Riga, the capital city, where 32.3% of the population reside(1) may have stores open 24 hours • Latvia joined the EU in 2004. Whilst EU 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

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 to meet the new greed for property), Latvia is now in Europe’s 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 1st store opening in Latvia in 1997 • By 2005, post EU membership, when investment in the country was high and the economy booming, Latvian’s 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 Latvian’s confidence and boosted morale and spending • Farmers were amongst those who capitalised on easy borrowing in 2005....
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