Established in 1869 by John James and Mary Ann Sainsbury and Britain's longest-standing major food retailing chain, Sainsbury believes that their brand is seen as representing quality and value for money, as well as high standards of customer service.
Strategies for success:
Tesco's growth over the last two or three decades has involved a transformation of its strategy and image. Its initial success was based on the "Pile it high, sell it cheap" approach of the founder Jack Cohen. The disadvantage of this was that the stores had a poor image with middle-class customers. In the late 1970s Tesco's brand image was so negative that consultants advised the company to change the name of its stores. It did not accept this advice, yet by early 2005 it was the largest retailer in the United Kingdom, with a 29.0% share of the grocery market according to retail analysts.
The phrase "inclusive offer" is used by Tesco to describe its aspiration to appeal to upper, medium and low income customers in the same stores. Tesco, Britain's biggest and most profitable supermarket chain has achieved its success through a smooth and efficient billion pound operation. In 1995 Tesco overtook Sainsbury’s as the UK’s largest supermarket. In 2001 Tesco occupied 15.6% of the UK grocery retail market and was the market leader by 6%. Tesco's enormous share is still growing: by September 2004, it had increased to a massive 28%.
Tesco's strategy is far ahead of Sainsbury – it has grown a strong UK core, and then rapidly developed international stores, built good non-food sales, expanded into retailing services and exploited e-commerce successfully.
The company has a four-pronged strategy:
Non-food business - Many United Kingdom supermarket chains have attempted to diversify into other areas, but Tesco has been exceptionally successful. Tesco sells an expanding range of own-brand non-food products, including non-food Value and Finest ranges.
Retailing services - Tesco has taken the lead in its sector in expanding into areas like personal finance (see below), telecoms (see below), and utilities. It usually enters into joint ventures with major players in these sectors, contributing its customer base and brand strength to the partnership.
Also, Tesco treats its home market and international market as individual sectors and tailors its strategies accordingly.
Strategies of Tesco’s UK market
As we can see form Porter’s value chain theory, concentrating distinct processes of total business operation could reduce cost and increase a firm’s competitive advantage. Tesco established electronic retailer-supplier communication systems, automatic stock control systems to strengthen its supply chain and reduce its stockholder cost. Tesco’s distribution centers in UK, Thailand and Hungary is able to improve efficiency for delivering product and minimize delivery cost. Tesco has also adopted four sorts of store formats as Extra (hypermarkets), Superstore (supermarkets), Metro (city-centre convenience stores) and Express (convenience stores with petrol filling stations). In response to Wal-Mart’s formula of low prices, Tesco is also taking a turn towards doubling up as entertainment centers, petrol pump and also apparel merchant.
Strategies of Tesco’s global market
Tesco began to expand internationally in 1994, and in the year ending February 2005 its international operations accounted for just over 20% of sales. It has focused mainly on developing markets with weak incumbent retailers in Central Europe and the Far East, rather than on mature markets such as Western Europe and the United States. In the retail industry, international expansion depends on developing an efficient local supply chain, local responsiveness and local customers. Tesco concentrates on integration to an extent, but the more vital strategies are responsiveness oriented. Tesco’s points of global strategies for local responsiveness are as follows:
Being flexible: While Republic of Ireland, Central Europe and South Korea saw Tesco expansion in the form of hypermarkets, Taiwan had to be content with city-centre convenience stores.
Becoming local: Local flavour ingrained in Tesco’s global strategy can be seen in the form of local employment, development of a local supply chain and adapting to regional practices in the manner it offers its products and services.
Establishing long-term planning: Tesco understands that in order to compete with local rivals, short term profitability has to be let go of in favour of long term development.
Sainsbury’s, the premier supermarket in the UK market for decades but currently ranked third behind Tesco and ASDA, appeals to a mainly middle-class core market. The group has struggled to retain its market share since the mid 1990s. In 2004 new chief executive Justin King launched a new strategy focused on supply-chain overhaul to tackle stock availability, increased competitiveness on price and improving customer relations.
One core aspect of Sainsbury's activities is its focus on customer/market segmentation. Sainsbury's divides their customer base into 10 separate segments. Customer intelligence is gathered through analysis of Nectar Card (launched in autumn 2002 in conjunction with Debenhams, Barclaycard and BP) purchases. This information is used to tailor Sainsbury's offerings to appropriate market segments.
In April 1994 Sainsbury's became involved in an intense price war with other Supermarkets. The financial return was low enough for the management to want the costs of stores to be reduced significantly. Sainsbury's strategy for maintaining its share prices had been to increase the size of the sales area each year. Collaborative working was seen as a way to reduce costs - but also to improve relationships with suppliers. Sainsbury's recent strategy – revamping its entire store portfolio, moving into the convenience sector, launching a major non-food range, acquiring fourteen Morrison stores, has been criticized as lacking focus – a quick fix designed to kick start an ailing business.
Although in the Christmas period of 2005, Sainsbury’s has shown a strong turn towards profitability, it is still too early to say if their new strategy is the right one.
Marketing A Lifestyle:
Supermarkets have moved from creating imitation brands to developing own-labels and sub-brands. These brands have become an everyday feature of consumers' lives and as a result, have earned loyalty.
PRODUCT
What's Tesco's product? Apart from the stock on the shelves, Tesco markets a way of living and gives a new meaning to convenience. From mince to mortgages, in today's Tesco one can buy a whole life's worth of products! Tesco divides their marketing segment into two parts, price-oriented and function-oriented.
Sainsbury's launches about 1,000 new products each year. The company's main focus for food development is through its Food Centre. The company has been working to develop more non-food product lines including children's clothes and health and beauty, banking & insurance.
The supermarkets want to expand the products in shop, these are not only food, but also non-food essentials, lifestyle items and services like home delivery, internet shopping, banking, insurance and travel.
PROMOTION:
Tesco adverts are the most visible way Tesco promotes itself. But one of its most important promotional tools is its Clubcard. Over 80 per cent of sales at Tesco are made using a Clubcard. Knowledge about customers, gathered through the Clubcard, is shown to be a first recourse for Tesco marketing strategists. “TESCO Computers for School”, a way to reward customer loyalty, wishes to strengthen community relationship, attract new shoppers into stores and help ensure the computer literacy of school leavers and potential employees. It also reinforces Tesco brand values.
Sainsbury's has announced a major change in its communication with its customers which will be introduced company-wide. The company’s new strap line "Try Something New Today". This was developed after research showed that customers wanted supermarkets to help them with simple but effective recipe ideas. Sainsbury's have recently signed up the 10 millionth customers in their Reward Card loyalty scheme. Making use of the latest relationship marketing techniques coupled with cutting-edge technology from Data General and Quad stone Limited, Sainsbury's now have the ability to interactively analyse their entire customer base.
PRICING
During its long term dominance of the supermarket sector Sainsbury's retained an image as a high-priced middle class supermarket which considered itself to have such a wide lead on quality that it did not need to compete on price, and was indifferent to attracting lower-income customers into its stores. This strategy has been adandoned since losing the no.1 spot to Tesco and particularly since the arrival of Justin King as CEO in 2004 who has established a new customer-focused strategy closer to that of Tesco focusing on the mass market with lower price tags.
Tesco began in the 1920s selling groceries to poor people in London's east end and price is still a big factor in its marketing pitch — though many of the items on its shelves aren't, in reality, all that cheap. All Tesco goods are not the same price in all Tesco stores.
Local managers use information from the checkouts to constantly adjust prices. This is called micro marketing. Products focusing on quality, Tesco Finest started with ready meals and chilled foods. The exceptional price and quality were well received by the higher end consumer. Focusing on mass markets which evaluate products based on price, advantages of Tesco Value products is to maintain the image and profit margins of existing brands.
Sainsbury's assistant managing director, Sara Weller, says Sainsbury's offer is founded on quality, service and value. While Sainsbury provides comparatively high price than Tesco, Psychological pricing e.g. 99p instead of £1.01 , Product line pricing e.g. one-pack 32p, Four-pack 99p, Captive product pricing e.g. one thing (low price) and another thing related (high price) and Promotional pricing - Such as volume discount, price discount, seasonal discount are the pillars of Sainsbury pricing strategy.
PLACE
Tesco made multi-million pound investments in foodstore developments in low-income areas. By linking with like-minded public and private sector organizations such as local community-based organizations, colleges, and chambers of commerce, the company has opened three locations in economically disadvantaged areas of Leeds, Durham, and Glasgow and plans to open three more stores this year. Tesco's UK stores are divided into five formats, differentiated by size and the range of products sold. Tesco Extra are larger, out-of-town hypermarkets that stock all of Tesco's product ranges. Tesco Hypermarket are very rare now, they came before the extra name. These are roughly the same size as Tesco Extra (if not bigger) and came in 1970. Tesco stores are standard large supermarkets, stocking groceries plus a much smaller range of non-food goods than Extra. They are referred to as "superstores" for convenience. Tesco Metro stores are sized between normal Tesco stores and Tesco Express stores. They are mostly located in city centers and on the high streets of small towns. Tesco Express stores are neighbourhood convenience shops, stocking mainly food with an emphasis on higher-margin products (due to lack of economies of scale) alongside everyday essentials. They are found in busy city centre districts and small shopping precincts in residential areas, and on petrol station forecourts. One Stop The only category which does not include the word Tesco in its name. These are the very smallest stores. They were part of the T&S Stores business. In May 2005 Tesco confirmed that it will be trialing a non-food only format called Tesco Homeplus.
Sainsbury, on the other hand has classified their stores according to three different formats: Some stores are classified as 'Main Mission' outlets concentrating on providing for the weekly family shopping trip. These stores vary in size between 20 000 and 48 000 square feet. Stores in the 'Main Plus' format are very large supermarkets (otherwise known as hypermarkets) occupying in excess of 45 000 square feet area and focus on a wider range of food products as well as more non-food items. The remaining stores are in the 'Mixed Mission' format. They include Sainsbury's Central (which range from 7000 and 20 000 square feet) and Local stores (ranging from between 2000 and 6000 square feet area).
E-MARKETING
Recognizing the potential of new-age technology, both Tesco and Sainsbury have adopted e-marketing as a method that can offer consumers convenience and increase efficiency and decrease cost. Tesco.com, the world’s largest virtual supermarket has been reported to have increased sales by 26% to 447 million in 2003.
Organisational Relations:
According to the Overall Organizing Framework for HRM (Phil Beaumont, 2005), the HR policies should be made based on the external fit and internal fit. This report will focus on the HR policies set up within the Tesco and Sainsbury.
Both Tesco and Sainsbury follow the External fit-Internal fit Theory very closely. However Tesco can be said to be following the result oriented approach to HRM while Sainbury in more relationship oriented in its human resource strategies.
An Overall Organizing Framework for HRM [Phil Beaumont Lecture Notes 2005]
WORK SYSTEM:
Geographical expansion necessitates both Tesco and Sainsbury to adapt to different cultures.
Flourishing local leadership is emphasized on Tesco to share the power of decision making. In large business, employees need to understand what is expected out of them and how they can contribute to the company, so in Tesco there is no management jargon, which could be a barrier to understanding. Many British retailers that have attempted to build an international business have failed. Tesco has responded to the need to be sensitive to local expectations in foreign countries by entering into joint ventures with local partners, such as Samsung Group in South Korea, and appointing a very high proportion of local personnel to management positions.
A largely family owned organization, Sainsbury staff often has a choice of work arrangements including: part-time, flexible contracts for retail employees, job share, home working etc. The company also has an Equality and Diversity policy, with a Steering Group led by a Board Director to advise the group.
REWARD SYSTEM:
In Tesco, every employee who replenishes shelves gets rewarded based on the amount and the quality of stock displayed. Moreover, employees in Tesco’s electronical department receive a commission-based bonus.
Sainsbury’s Save-As-You-Earn scheme for supermarket staff offers chance for company shares to be bought at a 20% discount. A profit-sharing scheme allowing employees to have shares or cash is responsible for roughly 50% of the company's shares being owned by current or former staff. Under a staff discount scheme, employees receive a 10% reduction on bought from the company. Long are given to staff with 15, 25 or 40 years' service. Also, the company operates performance-related pay and bonus schemes for middle and senior managers.
RECRUITMENT & TRAINING:
Tesco is the country's largest private-sector employer. To work with local labor pools, Tesco invested in the development of literacy, as well as retail skills, and adapted the corporate recruitment process to enable trainees in the transition. Jobs were offered based on aptitude. The recruitment process guaranteed local unemployed people a job before training commenced, subject to good attendance and attainment of skills. In addition to training, Tesco also addressed problems for job seekers such as transportation and childcare. AccountAbility's Innovation Through Partnership Programme is currently working with Tesco to explore and document the factors associated with the company's success.
In Sainsbury Personnel professionals have the confidence to challenge line managers, and the professional competence to address issues. The function, and personnel professionals in it, are more respected, valued by line and seen as a ‘one-stop-shop’. Managers and personnel professionals work in partnership to solve business problems. Line managers are more actively involved in training, selection, coaching, managing absence, etc.’
EMPLOYEE MOTIVATION:
Policy on employee influence helps Tesco to motivate employees by the way of receiving recognition for what they achieve through promotions. Duty managers and departmental managers are encouraged to solve bottlenecks through their own initiative and innovation. However, promotion oriented motivation tends to breed self-interest rather than company benefit. In Tesco, the managers seem to focus on career success.
However, in Sainsbury, the management emphasizes on helping staff achieve a better balance life between work and leisure. This kind of management enhances job satisfaction and flexibility. Sainsbury management makes efforts in this direction and creates a diverse workforce and family balance.
Possible Course Of Action for Tesco and Sainsbury:
In the context of the current market situation and depending on the phases of their life cycle, Tesco and Sainsbury find themselves looking for strategies that are quite different from each other in their character and aims. Sainsbury, borrowing from the Boston Box concept, can be said to have reached a cash cow stage. The company should preferably begin to harvest and divest its profits into developing other markets. In Sainsbury officials’ own words, ‘Sainsbury plc's present focus is to improve the performance of the core UK supermarket chain. Whilst doing so we will continue to explore and develop growth opportunities in other markets’. It is unlikely that this would be in the field of foods but perhaps more likely to be in the non-food sector. Sainsbury is still relatively weak in the non-food market and has the potential to expand and penetrate the electrical goods and clothing areas. Both of these are likely to maintain the company's edge in terms of revenue per employee.
Tesco, on the other hand is well placed to increase its lead over rivals, despite signs that Sainsbury's has turned the corner and some evidence that trading at Wm Morrison has stabilised, because it does not have to worry about rebuilding its margins. Tesco although faces possible competition from low priced supermarkets.
Sainsbury already boasts higher sales per employee ratio of £143,000 of revenue per member of staff compared with Tesco's £137,888. So in order for this strategy to be economically viable, it will need to maintain or even exceed this level of productivity. It would suggest therefore that Sainsbury has, perhaps, identified elements of weakness within Tesco's marketing programme and strategic planning that could be ripe for exploitation.
References:
Textbook:
Andrew Seth and Geoffrey Randall, (2005) Supermarket wars : global strategies for food retailers /Basingstoke : Palgrave Macmillan, 2005.
BODDY, D. (2005) Management an introduction, 3rd ed. (Harlow: Financial Times/Prentice Hall).
JOHNSON, G., SCHOLES, K., WHITTINGTON, R., (2005) Exploring corporate Strategy 3rd ed. (Harlow: Prentice Hall).
HAMLIN, B., KEEP, J., ASH, K., (2001) Organizational change and development (Harlow: Financial Times/Prentice Hall).
Database:
Datamonitor 2005…company profile-Tesco
Datamonitor 2005…company profile-Sainsbury
Keynotes 2003 [Supermarkets and Superstores Market Report]
The Motley Fool UK: Market Comment
Online resource:
www.bized.com
www.wikipedia.org.uk
www.tesco.com
www.electrobug.com
www.ourworld.co.uk
www.marketresearch.com
www.corporatewatch.org.uk
The Motley Fool UK: Market Comment
