4.1 Open Systems
Starting at the top of the organisation, I believe Sainsbury’s Board of Executives should operate with an open systems model. This approach is based on an organic system, with emphasis on adaptability, readiness, growth, resource acquisition and external support. These processes bring innovation and creativity. People are not controlled but inspired. These aspects are crucial to how Sainsbury’s is currently performing, as they need to adapt to changing consumer needs whenever required. Tesco is a prime example of innovation and adaptation recently to target a specific consumer group by increasing the quality of their food and maintaining low prices.
4.2 Human Relations
Moving into the separate divisions of the organisation I believe the Human Relations model should be adopted. This approach is based on cohesion and morale with emphasis on human resource and training. People are seen not as isolated individuals, but as cooperating members of a common social system with a common stake in what happens. This follows my earlier opinion in section 1.5 that the organisation should become further decentralized.
4.3 Internal Process
There is an argument that the Internal Process model is be more appropriate for each division as this is the one which Sainsbury’s currently operates with. The internal process approach is based on hierarchy, emphasis on measurement, documentation and information management. These processes bring stability and control. Hierarchies seem to function best when the task to be done is well understood and when time is not an important factor. That said, I still maintain that considering the services that Sainsbury’s offers rely on customer satisfaction in order for them to continue to use the service, the Human Relations model would be the best model.
Conclusion
Having investigated Sainsbury’s I believe the key areas to be looked at are:
- Methods to increase profitability such as decreasing prices to draw in more customers or increasing prices to force current customers to spend more.
- The need to be more aware of changing customer tastes and therefore focus on flexibility of the services provided.
- How to further improve open systems and human relations management models. More decentralisation and employee training may be the way forward.
Word Count 1624
5. References
David Boddy (third Edition), Management An Introduction
Mclaney & Atrill (Third Edition), Accounting An Introduction
Cameron (Third Edition), The MBA Handbook
Dibbs, Simkin, Pride & Ferrel, Marketing – Concepts and Strategies
Appendix 1 Alternative Models of Business Structure
TEAMS.
In this structure, management delegates significant responsibilities and authority not to individual workers but to an identifiable team, which is then mutually accountable for the results. The team may be from across functions or from within a single area – in which case it looks like a small department. The difference is that there is probably less hierarchical division amongst the members and more mutual accountability for results. They are sometimes called ‘self-managing teams’ to emphasise the relative absence of hierarchical relationships. However, the many potential advantages by way of better communication etc. are balanced by disadvantages, such as a tendency to take on their own purpose and to spend time in debate rather than action. A team structure would not be applicable to Sainsbury’s essentially due to the sheer size of the organisation
MATRIX, as represented below,
is an alternative organisation structure which is apparent in the retail division but not in the others. People are based in a functional group and then work for a divisional group or project on distinct tasks. If this model were to be applied to Sainsbury’s it would require corporate support functions such as Human Resources and Finance to be provided by centralised departments which could then operate across the businesses. I don’t believe that Sainsbury’s could base the organisation entirely on the Matrix model as across all the divisions there is too much product differentiation. Matrix requires closely related products to enable staff from functional areas to apply their expertise to new projects. A member of staff in a supermarket who stacks shelves would not be able to easily switch to a cashier in a bank. There are skill barriers. One example of a matrix approach recently was the introduction of a Business Transformation project. Cutting across all business areas this attempt at a more matrix style approach was poorly received by staff, failed to achieve improvement targets, was perceived as distracting staff from core business issues and was abandoned
NETWORK is another alternative structure which requires arrangements to be made with other companies to undertake certain activities on their behalf, usually those that they do not see as being core to the business. Network structure works with organisations which carry out similar processes and in Sainsbury’s case this would be applicable with functions such as Human Resources and Finance. The Shaws and Sainsbury’s supermarket brands could work mutually on areas more specific such as packaging and therefore lower costs. I would not suggest that Sainsbury’s adopts this structure completely as it would not be feasible for all divisions of the organisation however elements of the Network structure could be implemented to certain areas of the organisation.
GEOGRAPHIC structures are more common in widespread locations with an homogeneous product set. Whilst this is likely to appear within ofor example, the supermarket division it does not seem to offer any advantages to the organisation at Group level due to the different business types.
Appendix 2
Analysis of Financial data
Gross Profit Margin (GPM)- Due to the intense competition in the supermarket industry margins are generally low. See the following table for comparators which shows relatively poor margins for Sainsbury even compared to other retailers ;
The increase in GPM from 2001 – 2002 is modest but does indicate that gross profit was higher relative to sales revenue in 2002 than 2001Turnover was however down in 2002 and profits were buoyed by reduced cost of sales. This does not bode well as it is unlikely that costs can continue to be cut in this way in the long term.
Operating Profit Margin -. The operating indicates how effective a company is at controlling the and associated with their normal business . Clearly from the data above Sainsbury’s were more efficient at controlling their costs and expenses in 2002 than they were in 2001, confirming the above analysis.
Retained Profit Margin – This is profit not spent but retained to be used within the business. High retained profits may indicate a cash rich business looking at future investment or one worrying about putting money aside for an anticipated ‘rainy day’. This shows a modest increase in 2002 but from a low base and is inconclusive.
Profit Mark Up – This is the profit margin added to the cost of products
Net Profit Margin – The net profit before interest and taxation is used in this ration as it represents the profit from trading operations before the interest costs are taken into account. This is often regarded as the most appropriate measure of operational performance, when used as a basis of comparison, because differences arising from the way in which the business is financed will not influence the measure. It can be seen from the results that in 2001 for every £1 of sales revenue an average of 2.97p (that is, 2.79%) was left for profit. There was an improvement in 2002 as for every £1 of sales revenue and average of 3.61p was left as profit. This is a satisfactory rise in the net profit margin because as stated earlier supermarkets tend to operate on low prices and, therefore, low profit margins to stimulate sales.
Return on Capital Employed (ROCE) – The return on capital employed is a fundamental measure of business performance. This ratio expresses the relationship between the net profit generated during a period and the average long-term capital invested in the business during that period. It compares inputs with outputs. The following table shows comparative ROCEs;
Sainsbury’s ROCE, up to 7.5% in 2002, is relatively healthy compared to many retailers and this is good news for investors.
This comparison is vital in assessing the effectiveness with which funds have been deployed. Sainsbury’s has seen a good improvement on the return on capital employed since 2001, an increase of 1.7%.
Return on Working Capital – Similar to ROCE, but using working capital rather than shareholders’ investments and confirming the ROCE assessment.
Return on Total Assets – The Return on Total Assets Ratio (ROTA) has a similar meaning to ROCE and the method of calculating it is the same, too. However, again the results show a modest improvement in the ROTA from 2001 to 2002.
Total Asset Turnover – The asset turnover ratio simply compares the turnover with the assets that the business has used to generate that turnover. There was very little change in the ratio for Sainsbury’s between 2001 and 2002.
Return on Fixed Assets – A measure of return set against the fixed assets of the company and confirms the above analysis. This suggest very little real improvement in long term profitability with operating cost reductions driving profit margins.
Liquidity – Liquidity refers to how quickly and cheaply an asset can be converted into cash. Money (in the form of cash) is the most liquid asset. Assets that generally can only be sold after a long exhaustive search for a buyer are known as illiquid. Some people seem to suggest that there is an ideal current ratio (2:1) for all businesses. However, this fails to take into account the fact that different types of business require different current ratios. For example Sainsbury’s will have a relatively low ratio compared to non-retailers (see table below), as it will hold only fast-moving stocks of finished goods and will generate mostly cash sales revenue. This explains why in 2001 Sainsbury’s current ratio was 0.9. This figure isn’t a cause for concern as some of Sainsbury’s competitors including Tesco were operating at an even lower ratio. The fall from 0.9 to 0.8 in 2002 is also not necessarily a cause of concern to Sainsbury’s. However the acid test ratio will provide a clue as to whether there is a problem. The acid test ratio is a variation of the current ratio, but excluding stock. It can be argued that in many businesses, stock cannot be converted into cash quickly. Therefore this particular asset is removed from any measure of liquidity. The minimum level for this ration is often stated as 1:1(that is, current assets(excluding stock) equals current liabilities). The fact that Sainsbury’s acid test ratio was 0.7 in 2001 is yet again not of major concern but the fact that if fell to 0.6 in 2002 suggests that there may be some underlying liquidity problems. When stocks don't have much , two problems arise: first, there is the possibility that the stock you purchased cannot be sold. If there is a low level of liquidity, it may be hard to find a buyer for a particular stock, and you may be required to lower your price until it is considered attractive by another buyer. Second, low liquidity levels provide opportunities for some traders to manipulate stock prices, which is done in many different ways - the easiest is to buy large amounts of stock, hype it up and then sell it after other investors find it attractive (also known as ).
Gearing – This is concerned with the relationship between long term liabilities of a business and its capital employed. The idea is that this relationship ought to be in balance, with the shareholders' funds being significantly larger than the long term liabilities. That is not true of Sainsbury where this figure is roughly 1:1. This suggests shareholders in Sainsbury’s might be concerned that they don’t have enough control and the company is running on debt and loans. Liabilities rose almost 50% in 2002 fuelling this concern.
Earnings per Share – The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. The rise in the earnings per share from £143 in 2001 to £188 in 2002 is a good sign clearly for shareholders, but it also shows an increase in the profitability of Sainsbury’s. The Chief Executive and Chairman are happy with the improvement in these figures, however, declining share price is a continuing cause for concern as the table below shows;
Appendix 3
The Marketing Mix
Product
Decisions are made about how to target the market and make the product appropriate to the market segment that the company is trying to sell to. Factors that need to be taken into account include; packaging design, materials used, value of the product, quality of the product, product branding, usefulness of the product, and quantity of the product provided. Sainsbury’s product is based around a wide choice of branded products plus cheaper but still good quality own brand products. Part of the Product section of the mix is the ability to change or develop the product being provided in order to match the requirements of the customers that it is being aimed at. It is essential that a firm can change/alter their products to reflect any change in consumer needs. Sainsbury’s is currently struggling to get the product differentiation required to attract a particular segment of the market (high quality, modest prices) as Marks and Spencer along with Waitrose occupy the high quality high prices segment and Tesco occupies the medium-high quality low price segment. Now more than ever Sainsbury’s needs to realise that the products it provides are at the end of their maturity stage in the product life cycle. The methods for product revival are to; encourage consumer loyalty, distribute the product as widely as it is demanded by consumers, and cut selling prices.
Price
The price of the product, particularly the price compared to that of your competitors is a vital part of marketing. There are five possible pricing techniques:
- Loss Leader Pricing
- Penetration Pricing
- Price Skimming
- Differential Pricing
- Cost-plus Pricing
Sainsbury’s approach would appear to be ‘affordable quality’, however part of the reason for their loss in profits of late is due to Tesco improving quality whilst maintaining lower prices than Sainsbury’s. Furthermore, Asda has maintained product differentiation by offering very low prices. A way for Sainsbury’s to attract customers attention would be to use the loss leader pricing strategy which lowers the price on a few key products. Once the customers then come to the stores to get the bargains, they will buy other products and thus stimulate interest in products in the maturity/decline stages of their life cycle.
Promotion
This element of the marketing mix involves taking decisions about the information that will encourage consumers to buy a product or change attitudes and behaviours in some way. The most frequent modes of encouraging consumers to buy products include:
- Advertising – this is the form of communication commonly selected when an organisation wishes to transmit a message to a large audience. It includes advertising on television, radio, magazines, and internet. The quote below is an example of a successful advertising campaign recently undertaken by Sainsbury’s “A case study (presented as part of the Advertising Effectiveness Awards) argued that Jamie Oliver (the TV chef) has helped the group to generate £1.12bn extra in sales. So has the 'Naked Chef' been a naked success for Sainsbury's? Well according to a review of the advertising campaigns carried out by the supermarket group, the answer is definitely 'yes'. It argues that the £41m spent on the advertising campaign has helped to generate £5 of profit for every pound spent on the campaign. The supermarket group has increased turnover by £2bn over the last two years and the report is attributing over half of this to the advertising campaign. However, critics point to the fact that Sainsbury's have also been spending billions of pounds on upgrading stores and improvements in their distribution and supply chain. They have also opened 4% more selling space over the same time period.”
- Sales promotions – organisations typically use these to encourage consumers who are considering a product to take the next step and buy it. Examples of these promotions in Sainsbury’s are the Nectar Reward cards which allow customers to collect points for money spent in the stores, which will provide them with an opportunity to win prizes. Sainsbury’s joint venture with Boots over the last few years is another marketing technique used to try to boost sales.
- Personal selling – this is when customers require first-hand information before making a product. Sainsbury’s provides this service at it’s customer services desk and in addition all staff are required to aid customers as much as possible with whatever they require.
- Public relations – this is more to do with building good working relationships with the media and using them to promote a positive image of the organisation.
Place
Place refers to decisions about the ways in which products can be most effectively distributed to the final consumer, either directly or through intermediaries. Sainsbury’s undertakes several methods of delivering their products to the consumer. The internet shopping and delivery service provided is known as direct sale as the product is supplied directly to the customers door. This also allows the firms to gather consumer data for relationship marketing. In terms of the stores which Sainbury’s operates, there are three different sizes serving different purposes. The ‘Main Mission’ outlets are located in the peripheral regions of large towns/cities to provide goods for customers weekly shop. There are 64 ‘Main Plus’ format outlets which are very large stores (hypermarkets). Finally there are ‘Mixed Mission’ format outlets with extend to more remote regions. They are smaller as they have a smaller population size in their catchment area.
Sainsbury’s supermarkets are used for place and promotion with regards to the banking service which they provide.
Process
For the purposes of the marketing mix, process is an element of service that sees the customer experiencing an organisation's offering. It's best viewed as something that your customer participates in at different points in time. Process picks up on Sainsbury’s problems with supplying stores with the recent issues of ‘empty shelves’ and the failed business transformation project of late. “Previous reports on the Christmas sales in 'In the News' have commented on the problems Sainsbury's has had in getting goods to the stores in sufficient quantities - something you would think is relatively simple - but the processes involved are highly complex and it appears that despite spending huge sums of money on the problem, Sainsbury's have yet to get it right.”.
Physical Environment
This part of the marketing mix is about the quality and appearance of the Sainsbury’s stores. It is obviously of great importance to Sainsbury’s that their stores make customers feel comfortable.
People
People are the most important element of any service or experience. Services tend to be produced and consumed at the same moment, and aspects of the customer experience are altered to meet the 'individual needs' of the person consuming it. Customers buy from people that they like so it is of great importance that staff’s attitude, skill and appearance are first class. The ways in which Sainsbury’s add customer experience is through training, personal selling, and customer service
Appendix 4
Strategic analysis of Sainsbury PLC using Porter’s 5-Force Model
3.1 Introduction
All of Sainsbury’s businesses operate in extremely competitive environments. In general managers are most concerned with the forces in their immediate competitive environment. According to Porter “the ability of a firm to earn an acceptable return depends on five forces – the ability of new competitors to enter the industry, the threat of substitute products, the bargaining power of suppliers, the bargaining power of buyers and the rivalry amongst existing competitors.” A detailed analysis of Sainsbury is at Appendix 4 and is supplemented by an application of the ‘Boston Matrix’ concept which analyses the relative position of products or businesses in an organisation helping to determine future strategy on investment and other key issues.
I will analyse the issues affecting Sainsbury’s strategic position with reference to each of these forces. The analysis concentrates on the main UK retail business which is the predominant element of the Sainsbury portfolio of businesses, with some reference to banking and property arms. Insufficient information is available for a detailed analysis of the Shaws US operation but a similar environment to the UK supermarket chain is probable.
3.2.1. Threat of New Entrants
The competition in an industry will be greater the easier it is for other companies to enter this industry. New entrants can affect major components of the market environment (e.g. market shares, prices, customer loyalty) at any time this will inevitably have a major influence on the strategy of existing players.
The threat of new entries will depend on the extent to which there are barriers to entry. These are typically:
· Economies of scale (minimum size requirements for profitable operations),
· High initial investments and fixed costs,
· Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets,
· Brand loyalty of customers
· Protected intellectual property like patents, licenses etc,
· Scarcity of important resources, e.g. qualified expert staff
· Access to raw materials is controlled by existing players,
· Distribution channels,
· Existing customer relations, e.g. from long-term service contracts,
· High switching costs for customers
· Legislation and government action
The likelihood of new entrants to the supermarket industry is doubtful mainly due to the high initial investments and fixed costs. There would be an enormous amounts of capital needed to create a nationwide supermarket chain that was able to compete with the likes of Sainsbury’s, Tesco and Asda. Not withstanding the high entry costs there is also the issue of brand loyalty.
The major supermarket organisations of today have enormous influence on the market as a result of rigorous and expensive marketing campaigns. For example Sainsbury’s most recent campaign had the help of ‘celebrity chef’ Jamie Oliver and generated a five to one return on advertising costs. The brand loyalty that these organisations have created means that a consumer would be very unlikely to switch to an unknown product unless they were sufficiently dissatisfied with the current products on offer.
As there are already a considerable number of competitors in the retail market (i.e. Tesco, Asda, Waitrose, Aldi) that there isn’t currently room in the market to accommodate for another major competitor; indeed the number of large players is reducing as a result of mergers.
The only way a new entrant could be of any threat to Sainsbury’s would be in the case of a merger/takeover from an unknown company from abroad. This occurred in 2000 when the American giant Walmart took control of Asda. The invasion by the US giant unnerved investors in rival companies. Shares in Tesco slumped nearly 7% to 178p, while Sainsbury fell 5% to 370.5p. Safeway, however, the smallest of the big four UK supermarkets, rose nearly 3% to 252p after speculation that it was being courted by US suitors. All in all the managers of Sainsbury’s will be reasonably undaunted by the threat of new entrants into the industry due to the high entry costs, brand loyalty and the power which the major players have over suppliers.
There are currently nineteen banks operating in the U.K and Sainsbury’s is one of the smallest as it is a relatively new entrant itself. It only has 1.5million customers in comparison to Barclays 13million. The larger high street banks don’t compete in the same business environment as Sainsbury’s; is actually the first of its kind in the banking world, as it doesn't offer day-to-day banking but a mixture of keenly priced credit products.
These products are aimed largely at existing Sainsbury’s customers and leverage the brand name of the company and use promotions in Sainsbury’s stores as the main point of access for customers. Picking up a loan with your shopping is as physically easy as it is financially attractive.
Other large retailers such as such as Tesco, Asda and Safeway are copying this approach and offering similar products, so there is clear threat of entrants but the threat is limited as these competitors rely primarily on a supply of customers through their supermarket outlets. In this scenario Sainsbury’s bank is more likely to be seen as a threatening new entrant by High Street banks rather than be concerned with other new entrants.
For Sainsbury’s property-related companies there is a wide range of opportunity for new entrants from other large retail companies to smaller-scale developers. In this market the considerable resources of the parent company make Sainsbury’s a powerful player in the property market with little threat from new entrants.
3.2.2. The Power of Buyers
Buyers (customers) tend to seek lower prices or higher quality ay constant prices, thus forcing down prices and industry profitability.
Buyer power is likely to be high when:
· The product represents a major proportion of the buyers total costs, creating the incentive to seek lower prices,
· The supplying industry comprises a large number of small operators
· The supplying industry operates with high fixed costs,
· The product is undifferentiated and can be replaces by substitutes,
· Switching to an alternative product is relatively simple and is not related to high costs,
· Customers have low margins and are price-sensitive,
· Customers could produce the product themselves,
· The product is not of strategic importance for the customer,
· The customer knows about the production costs of the product
· There is the possibility for the customer integrating backwards.
In the supermarket industry the buyers have a considerable amount of power as the industry fills six of the ten criteria above. The main issue for supermarkets is that grocery shopping takes up a large proportion of household expenditure, which mean customers are very sensitive to quality and price. Furthermore when it comes down to food there are very close or even identical substitutes to what is being sold at Sainsbury’s in other stores like Tesco and Asda. Obviously each store strives to differentiate it’s product by way of price or quality but at the end of the day switching to an alternative product is relatively simple for consumers to do.
Porter’s ‘power of buyers’ force is crucial to Sainsbury’s as not only do they need to attract customers from their rivals but they also need to make them spend as much as possible and retain them through a variety of offers like the ‘Loyalty cards’ and ‘Nectar rewards points’.
In the case of Sainsbury’s bank the buyers have similar power as they are likely to consider options for financial products from a wide range of suppliers. Sainsbury’s depends on customer loyalty to brand, ease of purchase and product positioning to win business.
Buyers have relatively little power in the case of Sainsbury’s property companies as few of the criteria above are met.
3.2.3. The Power of Suppliers
The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services.
Supplier bargaining power is likely to be high when:
· The market is dominated by a few large suppliers rather than a fragmented source of supply,
· There are no substitutes for the particular input,
· The suppliers customers are fragmented, so their bargaining power is low,
· The switching costs from one supplier to another are high,
· There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins. This threat is especially high when:
· The buying industry has a higher profitability than the supplying industry,
· Forward integration provides economies of scale for the supplier,
· The buying industry hinders the supplying industry in their development (e.g. reluctance to accept new releases of products),
· The buying industry has low barriers to entry.
In such situations, the buying industry often faces a high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization.
When it comes to the issue of power between suppliers and supermarkets, Sainsbury’s have it all their own way. From the points above we can deduce that suppliers power is low as there are numerous suppliers to the supermarkets and if they aren’t content with one of the suppliers products they can easily switch to another without incurring a great cost. Finally the supplier cannot integrate forwards as there are high barriers to entry in the supermarket industry.
The suppliers to Sainsbury’s bank are limited in terms of range and importance. There are few fixed costs beyond software and associated products. As a ‘virtual’ business with considerable capital available through the parent company the Bank has very little reliance on suppliers. The same is true of Sainsbury’s property businesses.
3.2.4. Threat of Substitutes
A threat from substitutes exists if there are alternative products with lower prices or better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products.
Similarly to the threat of new entrants, the threat of substitutes is determined by factors such as;
· Brand loyalty of customers,
· Close customer relationships,
· Switching costs for customers,
· The relative price for performance of substitutes,
· Current trends.
Sainsbury’s is not under any particular threat from substitutes in it’s stores due to the large variety of products available. Taking toothpaste as an example, Sainsbury’s stocks numerous brands of toothpaste that any specific toothpaste substitutes are made available. With regards to toothpaste as a product there aren’t any substitutes. You can’t brush you teeth with anything else.
There are substitutes for Sainsbury’s as a retail unit. The recent growth of e-shopping has meant that customers can choose the food they want online and have delivered directly to their door.
For Sainsbury’s banking there is an increasingly popular substitute for their products which is online banking. Companies such as Egg and Cahoot have grown rapidly over the last few years and undermine the main magnetism that was the ease of accessing Sainsbury’s banking whilst shopping. Now with online banking people can gain access to their accounts from the comfort of their own homes.
3.2.5. Industry Competitors
This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry.
Competition between existing players is likely to be high when
· There are many players of about the same size,
· Players have similar strategies
· There is not much differentiation between players and their products, hence, there is much price competition
· Low market growth rates (growth of a particular company is possible only at the expense of a competitor),
· Barriers for exit are high (e.g. expensive and highly specialized equipment).
The effect of industry competitors is by far the biggest influence in the business environment in which Sainsbury’s supermarkets operates. All of the above criteria are true within the supermarket industry.
There are four large retail firms competing for customers – Tesco, Asda, Sainsbury, Morrisons/Safeway. There are also a range of secondary, sometimes niche players such as Aldi (budget shopping) and Waitrose (high cost/quality). All of their strategies are to improve quality and lower prices. There is little or no product differentiation (only variation is in price or market segmentation). All the firms in the industry strive for a competitive advantage over their rivals. In pursuing this competitive advantage firms can choose from a range of several competitive moves such as; changing prices, improving product differentiation, creatively use channels of distribution, exploiting relationships with suppliers by demanding certain quality standards.
Another reason for intense rivalry between firms in the retail industry is because there are high storage costs and highly perishable products, which cause the stores to sell their goods as soon as possible. Because other stores are attempting to unload at the same time, competition for customers intensifies. Furthermore the low switching costs that customers face mean that firms fight even harder to retain each customer.
One way that the supermarkets have attempted to maintain customer loyalty is through the offers called Sainsbury’s Rewards cards or Tesco Clubcards which give savings back to customers for points collected when they shop, which in theory makes customers more loyal to that store. In reality loyalty cards may be seen to be past their ‘shelf-life’ as many shoppers actually own several cards and just present the correct one depending on which shop they are in. The real advantage to stores is not necessarily the ‘loyalty’ element but the data on customers and their spending patterns that the cards provide.
The final point about rivalry is that of takeover. When a takeover deal is finalized it is big news in the retail world because it should mean that the new firm should be able to drive costs down and hence lower prices. This was the concern in the industry when Morrisons took control of Safeway. The process of combining the two companies has not, however proven easy and results have been extremely mixed.
The scenario of competition amongst banks is very similar to that amongst supermarkets. All the firms are trying to persuade more customers to open accounts with them by offering higher interest savings accounts or better insurance deals etc. The main competition which Sainsbury’s faces as stated earlier come not from high street banks but other banks of the same kind i.e. Tesco banking and other online banks such as Egg and Cahoot. This is becoming a highly competitive environment and Sainsbury’s bank has not grown to the extent that the parent company may have hoped.
Once again the market environment of the property companies is much less complex but still competitive, with considerable pressure from other retailers for new and potentially lucrative out of town sites for supermarkets.
3.3 Conclusion
Having used Porters Five Forces Analysis on Sainsbury’s I can conclude that Sainsbury’s business environment is an extremely competitive one which as a result has driven down supply chain and operating costs, found imaginative new ways to attract, retain and gain maximum sales from its’ customer base and seen considerable merger activity.
The most significant factors acting on Sainsbury’s supermarkets from most to least are as follows:
- Industry Competitors
- Bargaining Power of Buyers
- Threat of Substitutes
- Threat of New Entry
- Bargaining Power of Suppliers
The critical issue is how Sainsbury’s supermarkets can rebuild it’s market share if not it’s past dominance in a highly competitive environment. The UK company has struggled to compete recently with Tesco’s advances, especially into the ‘middle ground’ of better-off, middle class customers, as they have combined higher reputation for quality with low prices.
Whilst the US company has seen growth in it’s convenience sector Sainsbury’s other businesses do not enjoy significant market share and are principally seeking to create niche markets using the leverage of the brand reputation of the parent company. Sainsbury’s bank in particular has encountered a challenging competitive environment with the growth of the on-line financial services sector.
All in all Sainsbury’s is operating in a challenging and developing strategic business environment and struggling to cope with intense competitive pressures; old glories are becoming increasingly hard to repeat.
Appendix 5
The Boston Matrix
This diagram below is a supplement to the marketing mix analysis and shows where I think each of the divisions under investigation in Sainsbury’s are placed. The boston matrix is a means of analysing the product portfolio and informing decision making about possible market strategies.
Analysis
In recent years Sainsbury’s supermarkets have been moving away from STAR status to a CASH COW. This is because; it has a high market share, low growth markets (maturity stage of product life cycle), high cash revenue and positive cash flows. Contrary to Sainsbury’s supermarkets, Shaws is moving away from DOG status -where large sums of money are required for support and the products are in a low growth market – to a STAR status. It is becoming the best performing division in the organisation. Sainsbury’s Bank and Developments Property have been hard to organise but I believe that whilst the bank hasn’t performed particularly well there is scope for a successful division here if more of the organisations efforts are focused on it.