sainsbury strategic management

University Degree Business and Administrative studies

J Sainsbury plc

The organisation that has been selected to examine and analyse is Sainsbury’s. Sainsbury’s has started its journey in 1869 and since then it has gradually established itself as the third largest supermarket chain in UK. Over the past few years its parent company J Sainsbury plc has prolonged its business and now owns a whole range of other companies like Sainsbury's Supermarkets, Sainsbury's Local, Bells Stores, Jacksons Stores and JB Beaumont, Sainsbury's Online and Sainsbury's Bank. The increasing figures of Sainsbury’s global sales and purchasing operations contributes to a significant rise in the business competence and productivity. However, this report will be examining Sainsbury’s position in the retail industry, explaining the role of interaction within the macro and micro environment, drawing up a detailed competitive advantage of the organisation and the strategies that influence the business policies to survive in the competitive market.

SOURCES OF INFORMATION: The sources are utilized for gathering information and to implement in critically analyse,

Books
Journals, Articles
Websites, Official company website
Newspapers, Magazines etc

Macro-Environment:

At this present phenomenon the nature of the retail industry is changing its image dramatically and the importance to survive with the competitors and remain as a leading company in the market has reached its highest peak. However, there are some issues which may have some impacts on the business.

Political factors:

At present the changing trend of globalised business could be a challenge as well as an opportunity for the Sainsbury’s because they would have to compete against new forces from all over the world to maintain best quality of the products and services they offer.

Customer may get a negative impression because of the investigation going on price fixing as Sainsbury’s is listed in the top four retailers in UK (Rigby 2008).

The UK Government is to reduce corporation tax rates from 30% to 28%, which will help Sainsbury, to save large amount of money (HM Treasury 2008).

Economical factors:

The rising food prices because of global food crisis may have impacts on the business of Sainsbury’s as it will definitely increase their purchasing and production cost (economist.com 2008). And eventually it will increase the overall price of the products in the super market

Supply chain of Sainsbury’s may get affected with the rising cost of fuel which may lead to an overall increase in prices.

The credit crunch will cut the purchasing power of the consumers as they would have less money to spend on luxury products. Therefore, automatically it is going to decrease profit margins for Sainsbury’s. On the other hand Sainsbury’s operates financial services company with HBOS (Annual Report 2007) and also a bank. However, both of are directed affected due to recession.

As the competition in the market is really high other big competitors like ASDA ,TESCO ,MORRISON ,LIDL , ALDI are cutting down their product prices and giving lot of incentives to customer which may bound Sainsbury’s to drop their prices to survive in the market. (Annual Report 2008)

SOCIAL FACTORS:

Sainsbury’s may introduce new recipes to cook easy and healthy food because now a days consumers tend to eat fresh food and seem to be more health conscious.

According to the health department the obesity rate in UK is increasing (department of health 2008). And because of that reason the UK government has emphasised on healthy eating (eatwell.gov.uk 2008) which gives Sainsbury’s to an opportunity to manufacture more healthy foods at a cheaper price to match the ongoing trend.

Technological:

It is predicted that by 2011 the online retail sales in Europe will hit approximately 263 Billion Euro because of the rapid increase of internet shopping in which the shoppers in UK may accounting for more than a third of all revenue.

Sainsbury’s can take the advantage of utilizing internet as an advertising media as 8% of the global advertising is spent on the internet and the percentage is increasing day by day (The Economist, 2007). It will be very cost effective and help the company to globalize very easily.

Self checkout machines may increase customer loyalty as they don’t have to wait in long queues sometimes for very few products. It saves their time and increase comfort while shopping. It can also be very cost effective as it will require less worker to work and can be in operated 24 hour shops which will boost up the sales figure.

RFID (Radio Frequency Identification Device) is a new technology yet to be popular but can play vital role in supply chain management fort the company. It can benefit big companies like Sainsbury’s to save their valuable time as it requires ...

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Environmental factors

Environmental factors are one of the key issues these days. Every company has to ensure that they contribute in reducing carbon footprint and to increase energy efficiency (Bream 2008) which means big companies like Sainsbury’s would have to invest more money to sort out Green issues.

With the growing ethical issues such as selling organic foods and treating animals in a good way may have impacts on the business of Sainsbury’s because they would have to retain their customers and balance their pricing after maintain all the environmental issues.

Legal factors:

Sainsbury’s would have to develop its packaging and labelling policies to meet all the implications of LAW on food and drinks. Which will add extra cost to their overall budget.

As Sainsbury’s operate a bank and is involved with financial services they would have to be more concerned about the legal issues and risks involved with their business.

Porter’s 5 forces analysis

Porter’s 5 forces analysis - Competitive rivalry

As we all know retail market is remarkably competitive compared to any other market. They usually have same or similar sort of products that could be found in their competitors business. For that reason, a large number of big companies are intending to enter non food market (Rigby and Killgren 2008) as it has become most important for companies to retain the ability to get in customer’s reach with better quality of products and services. Sainsbury’s convenient stores have helped the company in establishing a larger consumer reach in UK. There are three big supermarket chains in the UK retail sector that have different competitive advantage over their competitors. They are Tesco, Asda, and Morrison’s. Since 2004 it has increased its business steadily while reformation program started to take effect in 2007, Sainsbury’s had market share of 14.9% (Annual Report 2007).

Porter’s 5 forces analysis - Barriers for entry

The UK retail industry is at a very advanced stage most likely the western world where barriers to entry are undoubtedly very high. This basically means there are very little potentials for new entrants to establish themselves in the market. New entrants may require to invest huge amount of money in order to survive, competing against the most experienced retail sector within the UK. On the other hand, local knowledge is remarkably fundamental within the food retail sectors, which sometimes would be very difficult for foreign firms to imitate. Perhaps, they also would have to develop a significant brand image in the new market, which takes years to establish (Doyle 2002).

Porter’s 5 forces analysis - Threats of Substitutes

One of the major threat of substitutes may arise when one supermarket company takes over the business of the other companies. For example, because of the recent economic downturn company like ICELAND was taken over by other companies other than that, there are less possibilities of threats of substitute in the food retail industry as it has become an essential part of consumers day to day life especially in the modern world. However, it will be very difficult to substitute these organisations because now a days with their innovative food products and other efficient services customers can pleasure the total shopping experience under one roof. Moreover, as the supermarkets are getting more globalized, the competition in the market is forcing companies to bring alternative products and services every single day which makes them more powerful to remain in the market.

Porter’s 5 forces analysis - Buyer power

As the credit crunch has inconvenient impact on the global economy, consumers has less money to spend on products. To keep the profit margin stable the supermarket giants are more tending to give priority to customer needs to increase their buying power (O’Doherty 2008). On top of that too much competition in the retail market has given opportunities to the customers to choose from alternative options as most of the super market offers almost same products. The main different between them would be their pricing policy, strategies to gain customer loyalty and the contribution to emerging sensitive issues such as green credentials. In addition, the overall business environment in the UK retail industry optimizes the consumer buying power.

Porter’s 5 forces analysis - Supplier power

Usually the suppliers power is considered to be low especially in a big retail market within UK. As we already know the products provided by suppliers are quite similar in features which gives buyer a chance to negotiate. Sainsbury’s has a good reputation of being a trusted brand and most suppliers find it profitable to be involved with their business as they have large marketing scale. As a result, suppliers has less scope to negotiate too much knowingly Sainsbury’s has the privilage to switch to another supplier because of their big brand image. At some points suppliers may have got some power to negotiate when they can introduce unique products to the market. Some times also what happens suppliers are by themselves are huge as a company . for example P&G, Unilever, Cadbury etc in those cases if companies like Sainsbury’s don’t sell their products may face huge negative effects on their sales figures.

Micro-Environment

In order to evaluate the micro environment of the company basically we would have to look at different aspects of the operation that the company undertake and the business strategies they follow to compete with the competitors. The best way to identify those elements is evaluate company’s internal and external factors such as,

Strengths:

One of the key strength for Sainsbury’s is its management team which is lead by experienced leaders who set standards. According to an article in ‘Times online’ the ‘CEO’ has recently received honour for his contribution in Sainsbury’s. (timesonline.co.uk 2008)

Recently Sainsbury’s has a growth of straight 13 quarters which shows great commitment to their business (Rigby and Braithwaite 2008). And if we have a look at the 2007 financial year they had a huge 450% increase in profit (after tax) and 7% in overall turnover. (Annual Report 2007)

Sainsbury’s has a positive impression on its customers when take initiatives against Gangmaster (Taylor 2008), in purchasing fair-trade bananas (economist.com 2008) and other environmental issues.

Weakness:

The issue of the takeover bid by Qataris firm last year may have some impacts on the customer loyalty as they wouldn’t like to go to a company which is governed by foreign firms rather than British authorities. (Arnold and Politi 2008)

Sainsbury’s is only operating its business within UK, whereas, its biggest rival Tesco is expanding its business all over the world (economist.com [online] 2008), In that case Sainsbury should expand its business policies at a more globalized level and plan spreading its business as a backup.

Opportunities:

The strategy of making profit of £40 million through its Banks and investing huge amounts in properties (Killgren 2008b) may influence the parent company to expand its alternative businesses to obtain maximum growth. Promoting online sales can result profitable for Sainsbury‘s as it has huge margin at a lower cost.

Threats:

Long term investments should be made on environmental issues. For example, Sainsbury should hold up Bio-fuel as it reduces global emission quite efficiently and has direct impacts on the supply chain of Sainsbury’s. However, the pricing of it has implications on the overall cost which the customers may have to bear as well. Some issues such as , planning for future , competition in the market , employment , pensions , tax , law and their implications , green factors may require of more Legal responsibility from the company , if the company feels to draw deep concerns about these sensitive issues may face difficulties in near future.

Competitive advantage:

Sainsbury’s has got some competitive advantage which made its business so successful all over UK and established the 3rd food retail chain in United Kingdom. The competitive advantages are discussed below:

16 million customers visiting every week
More concerned with the environmental issues such as green house effect , reducing fuel emission , providing 15 million reusable bags , 8 million car stickers and fridge magnets to remind and encourage people to use environmental friendly resources.
Performing social responsibility while working with Comic Relief to raise money and help poor neighbourhood.
22% market share makes them one the power key player after Tesco in the British retail industry.
They have established a brand image and are considered to have the supermarket power which is ‘Locations’.
Sainsbury’s marketing strategy is to attract the middle class consumers with an affordable cost while maintaining particularly quality of the food they simultaneously.
They are promoting a new section name ‘Active Kids’ to help school kids and teachers to overcall child obesity. )
Sainsbury is the first super store to start One Hour Delivery slot outside of London. In addition if the y fail to do so on time customers will be paid £10 next time they do online shopping. (

Sainsbury’s bank loans ranked 13 out of 16 in the Ciao top list as ‘The Best Loan Lenders’

)

Developing customer service is a key advantage for Sainsbury. They discovered their highly skilled employees focus on their duties rather than Customers. So therefore , they changed the strategies and focused more to improve customer service to get extra advantage.
The adoption of RFID has brought new competitive advantage as only few companies has the privilege to use this innovative technology.
Making Sainsbury’s store more accessible for its customer while keeping in mind about some facts such as geographical aspects, ever changing lifestyles, and Government restrictions.
Cutting cost , giving incentives and introducing constant innovative products is a core advantage over competitors.
Sainsbury manufacturers their own products and has their own brands which helps them to produce products in a bulk quantity at a cheaper price.
The company has a unique core competency which is they promote value by providing good quality products at a competitive price.
Vertical integration in between buyers and suppliers has managed to organise and run a healthy supply chain system for the company which may help them to expand their business in future.

Limitations inter-related with the PEST Analysis:

In analyzing the macro-environment, it is important to identify the critical factors that might have affect on the business. A number methods of have been developed so far. PEST analysis happens to be one of the key tools to determine those factors in a various way.

Kotler (1998) claims that “PEST analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.” The utilization of PEST analysis could be considered effective for the corporate benefit and strategic developments of the company. Although everything has its own Pros and Cons , PEST analysis as a tool is not unlikely to them.

It can be said that Pest Analysis are sometimes done on simple assumptions which may not even exist in real. The reason behind may be the facts we take into account while doing a PEST for any company. It may not be considered on specific area or may be they less possibility to happen reality. It is also considered that PEST analysis doesn’t really emphasise on critical factors and it one of the major lacking of this method is it only covers external issues without concerning the internal environment of the company and position of competitors in the industry. Another disadvantage for PEST would be it is not done on a regular basis as the rules and regulations, currency rate , variables , foreign investment and economic figures etc .change quite often. Indeed to make it more realistic and practical it is important to gather information and obtain different perspectives based on individual point of view which is going to increase cost thus, results as a limitation for this vastly used tool.

The current position of the company in the market is quite strong though with the booming recession and business expansion of other competitors may cause some difficulties in future. Sainsbury’s being one of the largest supermarket company in UK should set some standards to achieve outstanding performance as a overall company. Moreover, Sainsbury should introduce some new business policies to expand its business outside of UK and explore the new markets like China, India , USA, Australia.

References

• Arnold, M., and Politi, J. (2007). ‘Rockier route to buy-out success’, Financial Times, London, 7 November.

• Bream, R. (2008). ‘Use less power to cut emissions’, Financial Times, London, 18 April.

• Department of Health (2008). http:// www. dh.gov.uk/en/Publichealth/Healthimprovement/Obesity/DH_078098 [Online]. [Accessed 16th Dec 2008].

• Dickinson, H. (2008). http:// www. kpmg.co.uk/industries/cm/r/ht.cfm#ii [Online]. [Accessed 16th Dec 2008].

• Directions magazines (2007). http:// www. directionsmag.com/article.php?article_id=629&trv=1 [Online]. [Accessed 17th Dec 2008].

• Doyle, P. (2002). Marketing Management and Strategy 3d ed., Pearson Education.

• Economist (2008). http:// www. economist.com/displaystory.cfm?story_id=9358986 [Online]. [Accessed 23rd Dec 2008].

• Economist (2008). http:// www. economist.com/specialreports/displaystory.cfm?story_id=10491144 [Online]. [Accessed 26th Dec 2008].

• Food Standards Agency (2008). http ://www. eatwell.gov.uk/ [Online]. [Accessed 23rd Dec 2008].

• Hawkes, J. (2008). http:// business.timesonline.co.uk/tol/business/industry_sectors/retailing/article3827752.ece [Online]. [Accessed 25th Dec 2008].

• HM Treasury (2008). Budget 2008. Stability and opportunity: building a strong, sustainable future. 12 March 2008. www. hm-treasury.gov.uk [Online]. [Accessed 27th Dec 2008].

• J Sainsbury plc (2007). Annual Report 2007. http:// www. j-sainsbury.co.uk/ar07/downloads/Sainsbury_Review_2007.pdf [Online]. [Accessed 27th Dec 2008].

• Killgren, L. (2007). ‘Sainsbury launches property venture’, Financial Times, London, 14 November.

• O’Doherty, J. (2008). ‘Carrefour confident of meeting sales target’, Financial Times, London, 10 January.

• Randerson, J. (2008). http:// www. guardian.co.uk/science/2008/mar/07/scienceofclimatechange.food [Online]. [Accessed 28th Dec 2008].

• Rigby, E, and Killgren, L. (2008). ‘Sainsbury buys back sites to fuel non-food growth’, Financial Times, London, 27 March.

• Rigby, E. (2008). ‘Sainsbury attacks 'scandal' of price inquiry’, Financial Times, London, 3 May.

• Rigby, E., and Braithwaite, T. (2008). ‘Sainsbury offers relief for retailers’, Financial Times, London, 10 January.

• Taylor, A. (2008). ‘J Sainsbury helps close gangmaster’, Financial Times, London, 17 April.

• The Economist (2007). The world in figures: industries. The world in 2008. p124 -126.

• Vallely, P. (2008). http:// www. independent.co.uk/news/world/politics/the-other-global-crisis-rush-to-biofuels-is-driving-up-price-of-food-808138.html [Online]. [Accessed 1st Jan 2009].

• Wiggins, J., and Urry, M. (2007). ‘Cadbury benefits from gorilla tactics’, Financial Times, London, 11 December.

Books

Hannagan,T,(2001),Mastering Strategic Management, 1st edition, Macmillan Publishers, England.
Barney,J and Hesterly,W,(2007), Strategic Management and Competitive Advantage: Concept and Cases, 2nd Edition, Prentice Hall, England.
THOMPSON, J. (2000) Strategy Management: Awareness and Change, 4th Edition, Thomson Learning, England.
Stacey, R, (2007), Strategic Management and Organisational Dynamics: the Challenge of Complexity. 5th Edition, Prentice Hall.
Hill C.W.L & Jones G.R. (2004) Strategic Management an Integrated Approach. 6th edn, Houghton Mifflin.