Edexcel IAL Business 3.3.5 Assessing Competitiveness

Practise Edexcel Business questions on competitiveness, market position and performance measures, using financial and non-financial evidence to reach a judgement.

Exam points

interpret financial and non-financial measures to assess a firm’s competitiveness
evaluate competitive position by weighing market evidence, resources and performance

Covered syllabus points

3.3.5.1a - Statement of comprehensive income 3.3.5.1b - Statement of financial position 3.3.5.2a - Financial ratio calculation 3.3.5.2b - Ratio interpretation 3.3.5.2c - Ratio limitations 3.3.5.3a - HR calculations 3.3.5.3b - HR calculation limitations 3.3.5.3c - HR strategies

[Maximum number: 16]

Extract A Lush promises to invest in UK stores after return to profit Ethical UK high street retailer Lush, best known for its highly scented bath soaps and handmade cosmetics, returned to profitability in the financial year 2021-22.

The latest statement of comprehensive income for Lush showed a pre-tax profit of £29m during 2021-22 compared to a loss of £45m in the previous year. However, turnover was lower at £408.7m, down from £437.8m in the previous year.

Lush operates retail outlets in 48 countries and has manufacturing facilities in six countries. It plans to attract more customers by investing in larger outlets with services such as health spas and hairdressers.

The business made no dividend payments to its shareholders in 2022. "We have to invest money now. We need to refit our shops." said Mark Constantine, one of the co-founders of Lush.

The group continues its policy of charitable donations, with Lush raising funds of £6.3m for several charities.

Extract B Selected cost and sales data for Lush's bath soap department

Table for Question 3.3.5 - Assessing competitiveness question 1 — Edexcel A-Level Business A2

Extract C Lush boss Mark Constantine happy to lose £10m after leaving social media Ethical beauty brand Lush is expected to lose £10m in sales after leaving four major social media platforms. Lush's co-founder, Mark Constantine, shut its Facebook, Instagram, Snapchat and TikTok accounts. Its Facebook and Instagram accounts had 10.6 million followers.

Constantine said he had no choice and that it is a price he is willing to pay. He was concerned over research showing the negative impact of social media platforms on many teenage girls, key consumers for Lush. "We've tightened up during the global health crisis, it won't destroy us. We will find new ways to connect with our customers as well as using the older tried and tested routes," he added.

Extract D Lush has been 10\% employee owned since 2017 The employees of Lush and its ethics are at the heart of the business. In 2017, Lush shareholders gifted 10\% of the company shares into the Lush Employee Benefit Trust (EBT). There are five Trustees who look after the trust on behalf of the employees.

The purpose of having an employee ownership scheme is to: - protect our ethics - ensure the independent ownership of the business - maintain the bonus culture - promote two-way inclusive communication - give every Lush employee a voice.

Extract E We Believe - Lush's guiding statement for 25 years We believe in: - making effective products from fresh, organic fruit and vegetables, the finest essential oils and safe synthetics - making products by hand using little or no preservative or packaging, using only vegetarian ingredients, and telling you when they were made - buying ingredients only from companies that do not test on animals - happy people making happy soap, putting our faces on our products and making our mums proud - our products being good value, that we should make a profit and that the customer is always right.

(a)

Explain one reason why shareholders might be interested in the financial
statements of Lush.

[ 4 ]

(b)

Assess whether employee share ownership might reduce labour turnover for a
business such as Lush.

[ 12 ]

Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.
QS: QS8 and QS9
Knowledge, Application, Analysis, Evaluation - indicative content
- Employee share ownership is when part of the business is owned by the
company's workforce
- Lush has given 10% of the business to its employees in the form of the Employee Benefit Trust (EBT)
- Extract D states the purpose of the EBT and how this could be of mutual benefit to Lush and its employees
- The EBT could create incentives in the form of employee motivation and productivity because the employees at Lush will benefit financially from their own efforts and have a stake in the business
- The EBT could reduce labour turnover because it gives every Lush employee a voice and rewards employees for remaining in the business
- By owning a share in Lush, employees might be less likely to move to
competitors in the same industry therefore improving retention
- However, the value of shares can decrease therefore it will reduce the
incentive to remain at Lush
- Only 10% of shares have been given to employees which does not give
employees enough power to really influence decision-making at Lush
- For many employees, good working conditions, pay and promotional prospects are more important than share ownership to persuade them to stay at a business
- There are other ways to improve retention such as empowerment strategies and consultation, which might be more effective and do not require ownership to be given to employees
- A combination of financial and non-financial human resource strategies
might be the best way to reduce labour turnover as employees are often
motivated by different factors

Level

Mark

Descriptor

0

No rewardable material.

Level 1

1-2

Isolated elements of knowledge and understanding - recall based.

Weak or no relevant application to business examples.

Generic assertions may be presented.

Level 2

3-4

Elements of knowledge and understanding, which are applied to the business example.

Chains of reasoning are presented, but may be assertions or incomplete.

A generic or superficial assessment is presented.

Level 3

5-8

Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.

Analytical perspectives are presented, with developed chains of reasoning, showing cause(s) and/or effect(s).

An attempt at an assessment is presented, using quantitative and/or qualitative information though unlikely to show the significance of competing arguments.

Level 4

9-12

Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.

A coherent and logical chain of reasoning, showing cause(s) and/or effect(s).

Assessment is balanced, wide ranging and well contextualised, using quantitative and/or qualitative information and shows an awareness of competing arguments/factors leading to a supported judgement.

[Maximum number: 16]

Extract A The Five Guys' family, freshness and customisation Jerry and Janie Mitchell lived in Arlington, Virginia. In 1986 they gave their five sons a choice: start a business or go to college. The business route won and the family opened the first Five Guys - named after the five brothers.

To this day, the formula remains simple: 'Burgers and fries cooked to perfection' in keeping with Jerry's philosophy of 'To perfect and to serve.' The family is still very much involved in the business, meeting every Tuesday.

Five Guys is organised differently from other fast-food burger outlets. You will not find a freezer in any Five Guys restaurant because everything is cooked from fresh ingredients. Food is prepared every day for maximum freshness including hand cutting the potatoes. Employees do the cooking without timers and are trained to judge the food's readiness by sight, aroma and texture. In other fast-food outlets machines are used to cook the food and timers are relied on to indicate when the food is ready to serve.

The burgers, hotdogs and sandwiches come with up to 15 free toppings, giving 250,000 combinations to choose from. If you had one a day, it would take you 684 years to try them all and the milkshake machines give over 1,000 possible combinations.

Extract B Selected financial data for Five Guys (UK and Europe) 31 December 2020 and 2021

Table for Question 3.3.5 - Assessing competitiveness question 2 — Edexcel A-Level Business A2

Extract C Data for purchasing a new £10000 milkshake machine for a Five Guys restaurant

Extract D How to Incentivise Your Crew The fast-food industry is well known for its over 100\% labour turnover levels. Many businesses are relying on employee incentive programmes to retain their workers.

One popular way is using mystery shoppers. A mystery shopper is a person employed to visit a shop or restaurant anonymously to assess the quality of the goods and services.

Five Guys uses mystery shoppers to assess the quality of its food and the customer services given by employees. The information gathered from mystery shoppers is used to create weekly, monthly and quarterly rewards programmes for its employees.

Five Guys rewards the top 200 restaurants every week. The weekly reward is anywhere from $900 to $1 300 per restaurant. The money is shared between the employees working in the restaurant when they were mystery shopped.

Molly Catalano, Director of Communications and Marketing at Five Guys, said, "We think that our success can be seen in the increasing mystery shopper scores over time, in the satisfaction of our employees and in our growth as a company. We have seen success in all three areas."

Five Guys is still expanding and has 1,600 locations in 19 countries across the world.

Extract E Five Guys launches merchandise collection Five Guys, known for its burgers, hot dogs and milkshakes, has launched the first of its clothing lines branded with the Five Guys logo in the UK.

The main item from the collection is the black and white embroidered unisex college jacket that pays tribute to Arlington, Virginia, where the brand was founded in 1986. This follows the current trend for American-styled clothing, which has seen college jackets feature in high street and designer collections during summer 2022.

Alongside the college jackets are the official Five Guys t-shirts, featured in red, black and white, branded sweatshirts and hoodies, baseball caps and red-and-white checked sports socks. There is even a lightweight rain jacket with the Five Guys logo.

Prices start from £10 for the socks to £75 for the college jacket. T-shirts cost £20 each, while sweatshirts are priced at £35 and hoodies at £45. All can be purchased at the Five Guys online store.

(a)

Extract B Selected financial data for Five Guys (UK and Europe) 31 December 2020 and 2021

Table for Question (a) — Edexcel A-Level Business A2

Extract B Selected financial data for Five Guys (UK and Europe) 31 December 2020 and 2021

Using Extract B, calculate to two decimal places the return on capital employed
(ROCE) for Five Guys in December 2021. You are advised to show your working.

[ 4 ]

Knowledge 1, Application 2, Analysis 1

Quantitative skills assessed:

QS1 calculate, use and understand ratios, averages and fractions.

Knowledge

1 mark for knowledge and understanding of how to calculate ROCE:
$\text { Operating profit × } 100 \text { (1) }$

Non-current liabilities + Total equity (Capital employed)

Application

Up to 2 marks for correct application of figures to formula:
$£ 50865 \mathrm{~m} \quad(\mathbf{1}) \quad \times 100$

£233 819m + £6 650m (1)

OR
$\underset{\longleftarrow 240469 \mathrm{~m}}{\varsubsetneqq 50865 \mathrm{~m}} \underset{\text { (1) }}{\text { (1) }} \times 100$

Analysis

1 mark for showing correct answer:

21.15% (1)

NB: If no working is shown, award marks as follows:

• If the answer given is 21.15% award 4 marks
• If the answer given is 21.15 award 3 marks

(b)

Assess the likely effectiveness for Five Guys of using financial rewards to reduce labour turnover.

[ 12 ]

Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.
QS: QS8 and QS9
Knowledge, Application, Analysis, Evaluation - indicative content
- Financial rewards include the use of bonuses, commission and piecework and performance-related pay
- Five Guys rewards its best 200 performing restaurants every week with
between $900 to $1 300 when visited by a mystery shopper
- The money is split amongst the people working when they were mystery
shopped
- FW Taylor stated that money motivates and for many employees the opportunity to earn additional financial rewards on top of a wage is very
attractive
- The fast-food industry is well known for high labour turnover so this strategy may in fact help to reduce the number of employees wanting to
leave Five Guys due to the higher reward
- The amount shared between employees can be a significant amount and is awarded weekly therefore giving a regular incentive to remain at Five Guys
- However, the financial bonuses are only awarded to the top 200 restaurants and with over 1,600 locations around the world, not every employee will be able to gain the bonus
- The total cost of providing the financial bonuses at the 200 restaurants
could be as high as $13 520000 per year which is which very expensive to
maintain
- This money could be better spent on other ways to retain its employees.
For many employees good working conditions and promotion prospects are
more important than financial rewards to persuade them to stay at a business
- There are other ways to improve retention such as empowerment strategies and consultation, which might be more effective and does not require additional financial rewards to be given to employees
- A combination of financial and non-financial human resource strategies
might be the best way to reduce labour turnover as employees are often
motivated by different factors

Level

Mark

Descriptor

0

No rewardable material.

Level 1

1-2

Isolated elements of knowledge and understanding - recall based.

Weak or no relevant application to business examples.

Generic assertions may be presented.

Level 2

3-4

Elements of knowledge and understanding, which are applied to the business example.

Chains of reasoning are presented, but may be assertions or incomplete.

A generic or superficial assessment is presented.

Level 3

5-8

Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.

Analytical perspectives are presented, with developed chains of reasoning, showing cause(s) and/or effect(s).

An attempt at an assessment is presented, using quantitative and/or qualitative information though unlikely to show the significance of competing arguments.

Level 4

9-12

Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.

A coherent and logical chain of reasoning, showing cause(s) and/or effect(s).

Assessment is balanced, wide ranging and well contextualised, using quantitative and/or qualitative information and shows an awareness of competing arguments/factors leading to a supported judgement.

All question bank results loaded

Covered syllabus points

3.3.5 - Assessing competitiveness question 1

Question (a)

Question (b)

3.3.5 - Assessing competitiveness question 2

Question (a)

Question (b)