Forms of Business (AQA A Level Business): Exam Questions

Ocado venture with M&S

Marks & Spencer (M&S) started to sell its popular food range online for the first time in September 2020, by forming a venture (also known as a joint venture) with Ocado. Ocado is a solely online supermarket that has well-established distribution networks and market-leading advanced technology.

M&S funded its part of the £1.5bn venture by selling £600m of shares to existing shareholders and by cutting shareholder dividends by 40%.

M&S stated that it had always believed M&S branded food should be available online and combining with Ocado was a ‘win-win’ situation that would drive long-term growth of both businesses.

Following the announcement of the venture, Ocado’s share price rose by 3%.

The launch of the venture followed over a year of hard work and required senior managers from both businesses to work together to make it happen.

Ocado venture with M&S

Marks & Spencer (M&S) started to sell its popular food range online for the first time in September 2020, by forming a venture (also known as a joint venture) with Ocado. Ocado is a solely online supermarket that has well-established distribution networks and market-leading advanced technology.

M&S funded its part of the £1.5bn venture by selling £600m of shares to existing shareholders and by cutting shareholder dividends by 40%.

M&S stated that it had always believed M&S branded food should be available online and combining with Ocado was a ‘win-win’ situation that would drive long-term growth of both businesses.

Following the announcement of the venture, Ocado’s share price rose by 3%.

The launch of the venture followed over a year of hard work and required senior managers from both businesses to work together to make it happen.

Banking on change

The UK banking industry is dominated by the ‘Big 5’ banks. These banks have had costly networks of physical branches. Recently they have closed many branches, particularly in rural areas.

New technology and changes to government rules have opened the market to competition from relatively new entrants called ‘challengers’. Challenger banks target a niche and aim to provide better customer service.

Metro Bank, like other challengers, has grown fast, but unfortunately it had to declare losses after a major accounting error in early 2019.

Appendix A Examples of types of challenger bank

Appendix B Market share of banks in UK, 2019 (%)

Appendix C Selected share price and market capitalisation box information

Appendix D People using online banking (2009–2019)
(Index: base year 2013)

Appendix E Analysis of UK banking industry (2019)

Banking on change

The UK banking industry is dominated by the ‘Big 5’ banks. These banks have had costly networks of physical branches. Recently they have closed many branches, particularly in rural areas.

New technology and changes to government rules have opened the market to competition from relatively new entrants called ‘challengers’. Challenger banks target a niche and aim to provide better customer service.

Metro Bank, like other challengers, has grown fast, but unfortunately it had to declare losses after a major accounting error in early 2019.

Appendix A Examples of types of challenger bank

Appendix B Market share of banks in UK, 2019 (%)

Appendix C Selected share price and market capitalisation box information

Appendix D People using online banking (2009–2019)
(Index: base year 2013)

Appendix E Analysis of UK banking industry (2019)

Bell Ltd

Bell Ltd is a UK-based food manufacturer with 27 branded products in three main markets:

• sweets

• snacks

• drinks.

The company has been very successful over many years, increasing its market share in each market. It has responded to market changes by investing in the development of new products such as low-sugar and vegetarian ranges. It monitors the sales and costs associated with each of its brands.

100% of shares in Bell Ltd are owned by four members of the Bell family who also have management roles in the business. The owners feel long-term strategic decision making at the company is more effective than if it was a public limited company.

Bell Ltd actively manages the trade credit offered to retailers who buy its products, such as chasing any overdue payments and minimising the period of credit it offers to them. By building long-term relationships with suppliers, it has secured favourable credit terms from them.

Speckles is produced by Bell Ltd and used to be a leading brand of sweets in the UK. In terms of the Boston Matrix, Speckles is now a ‘dog’. It was recently announced that Speckles would be discontinued. A social media campaign against this decision claimed that Speckles was an iconic brand from people’s childhoods and should be saved.

Table 1 Financial data for the Speckles brand

WeRide plc

WeRide (WR) is a taxi business. It has an app that allows its passengers to find and book the nearest driver themselves. WR has grown quickly and its service is now available in over 400 cities in 60 countries. It employs its taxi drivers on flexible employment contracts.

Stricter laws are threatening WR’s growth in the taxi market in some locations. For example, several cities have:

• imposed limits on the number of new licences for all taxis in order to reduce congestion and pollution

• banned WR because of concerns that its vehicles do not meet new safety regulations.

In 2018, WR announced a change to its future strategy. Instead of trying to grow its taxi business further, WR intends to invest several million pounds in developing a rental service for electric bicycles. This will be delivered through its app.

WR’s Chief Executive said that individual methods of transport, such as electric bicycles, were better suited to travelling around cities than cars these days. She recognises that the move into the rental of electric bicycles might damage short-term profits, but thinks it is the right long-term strategy for the business.

Although the profit margin on an electric bicycle ride will be less than a taxi ride, WR’s Chief Executive believes that the profits from electric bicycles will eventually be higher than from taxis. However, some investors are concerned about the impact on dividends of the decision to move into electric bicycles.

Marks and Spencer plc is one of the UK’s leading retailers. It provides its own-brand food, clothing and home products in 1433 stores worldwide and online.

Appendix A Extracts from Marks and Spencer plc’s published financial accounts

Balance sheet as at 1 April 2017

Appendix B Marks and Spencer plc’s revenue and operating profit 2013–14 to 2016–17

Appendix C Marks and Spencer plc customer data for financial year ending 1 April 2017

Appendix D Marks and Spencer plc online data

Appendix E Information on Marks and Spencer plc’s Board of Directors in 2017

International experience: directors come from the following countries

Gender diversity: 70% of directors are male, 30% female

Industry sector experience of directors: retail 90%, consumer 100%, finance 60%, e-commerce and technology 40%

Appendix F Marks and Spencer plc’s share price

Marks and Spencer plc is one of the UK’s leading retailers. It provides its own-brand food, clothing and home products in 1433 stores worldwide and online.

Appendix A Extracts from Marks and Spencer plc’s published financial accounts

Balance sheet as at 1 April 2017

Appendix B Marks and Spencer plc’s revenue and operating profit 2013–14 to 2016–17

Appendix C Marks and Spencer plc customer data for financial year ending 1 April 2017

Appendix D Marks and Spencer plc online data

Appendix E Information on Marks and Spencer plc’s Board of Directors in 2017

International experience: directors come from the following countries

Gender diversity: 70% of directors are male, 30% female

Industry sector experience of directors: retail 90%, consumer 100%, finance 60%, e-commerce and technology 40%

Appendix F Marks and Spencer plc’s share price

Lego

The Lego Group is one of the largest manufacturers and retailers of play material in the world. It is a private limited company based in Denmark that is wholly owned by the Kristiansen family. The company’s product range includes Lego, Lego Duplo, Lego Star Wars and Lego Friends.

Lego has been investing heavily in recent years; this has reduced the funds available for dividends. It is building new facilities in China and Mexico as part of its strategy to locate production nearer its markets. The company also invests significantly in attempts to spot consumer trends through market research and in new product development. Each year, new product launches account for approximately 60% of the company’s sales.

The company’s profits are calculated in the Danish currency, the Krone. Given that it is a global business selling in over 130 countries and buying resources from around the world, the company’s profits depend partly on exchange rates. A significant proportion of its sales are in Europe.

The company’s mission statement is to ‘Inspire and develop the builders of tomorrow’. Its culture is based on openness, trust and its core values of ‘Creativity, Imagination, Fun, Learning, Quality and Care’. Lego’s managers say that its continued success is made possible by the culture of the business and that it is important to take actions to help ensure employees share this culture.