Economies of Sale: Morrisons have always produced and packaged most products “in house” unlike any other supermarket, which has made them very efficient. Therefore after merging, 1200 Safeway staff that did not work in-store had to be made redundant which saved a huge amount on fixed costs. This is because Morrisons had much better established and more efficient work manufacturing procedures than Safeway and managed to still have an increasing supply with only a few extra staff (in proportion to previous numbers). They improved the relationship with the supplier of the raw materials who were able to improve the deals.
Location: As stated above, this is one of Morrison’s biggest reasons for merging, originally being concentrated in the midlands and north of the UK. Consumers in the South now have the opportunity to shop at Morrisons which have increased the spread of geographical location and more opportunity to sell to consumers of a higher demographic group to raise average spend. Renovation: All of their bought Safeway stores have had to be renovated which has consisted of new technology (tills), new fascia, new paint etc which offers a fresh new look to many stores across the UK.
This has not only improved image, but improved the average spend in the new shops (up 20% than other original Safeway stores. ) More Potential: Now that Morrisons have increased in size and have the additional help and skills from the directors at Safeway, they have more potential to go further, providing they keep profit margins increased and steady. They can target at many more consumers and implement new original products which are not always food based. Oligopoly: This is when 4 firms dominate market share between them making it very difficult for other firms to enter.
Now that Morrisons has increased in size, there is a much more concentrated oligopoly competition set up making it much harder for any other firm which reduces competition The Failures that have arisen from the Merger Redundancy: Even though saving money was the initial idea when making 1200 people redundant, the redundancy fees were very expensive to Morrisons (17. 6m). It is also very bad for unemployment levels making so many people redundant at once and did not earn the newly formed company a good reputation.
Account Problems: The newly formed company did not get off to a very good start when they faced major publicized account problems. It emerged that Safeway had changed its accounting system just three weeks before the takeover and inflated its books by taking early bonus payments from suppliers and therefore creating a deficit (the amount by which expenditure exceeds budget) in excess of i?? 180 million when the Morrisons accounting system was applied. Failures to raise average spend: Even though customer numbers have improved dramatically, the average spend has not.
In unconverted Safeway stores especially, they have an average spend 20% below that of converted stores, ( 4. 06 less) and overall, the average spend has fallen by 6. 26% than last financial year. (See below) Unconverted stores lost: As described above, the unconverted stores were making a loss. This is due to the fact that Safeway now has a tired, washed out image being public knowledge that it is not “Safeway” anymore. Consumers will prefer to shop at a fresh, good image store that has clearly recently been renovated.
Cost of renovation: All Safeway stores had to have their fascias removed and replaced with a Morrison’s one. This took a total of 20 months and 4. 2million to complete with the last Safeway being re opened on the 25th November 2005. Even though this was expensive, it had to be done otherwise half of their stores would be making a loss. Wrong Format: In late 2004 it was announced that the 114 smaller ‘Safeway Compact’ stores were to be sold off to Somerfield in a deal worth in total of 260. 2 million.
This is because Morrisons is suited to the “Market Street” format which is better suited to larger stores and could not be integrated into Safeway Compacts. However for Somerfield, who are known for their smaller outlets, this has helped them tremendously to increase their size and geographically spread. Feeding the competition: When Morrisons was ordered to sell 52 Safeway stores, they were snapped up by Tesco, Sainsbury, Waitrose and Asda. The ones sold to Tesco and Waitrose have shown to double their sales.
Additionally the other stores have done well by improving sales by up to 70%. This has fed Morrisons competition and has obviously not helped them. Operational and Culture Differences: Much more money has been invested in applying Morrison’s operational techniques to delivery, customer care and stocking etc. This is to achieve the high efficiency Morrisons has always acquired to save in the long run. Additionally, more capital has had to be invested into training the staff into the desired culture of the Morrisons policy.