How Sainsburys have adapted to their business environment

by irshy72 (student)

Irshad shiliwala

How Businesses have changed and adapted to their environment

Sainsburys

Sainsbury’s was founded in 1869 and today operates over 1,000 stores, including 440 convenience stores and employs around 150,000 people.

Founded in 1869 by John James and Mary Ann Sainsbury, J Sainsbury plc has become one of the largest food retailers in the UK. Its origins date back to one of the poorest regions in London and it gained its reputation for selling high quality products at low prices. It was as far back as 1882 when its strategy of high quality products at premium prices in more affluent areas began to develop. Facing serious competition from larger chains, the founder expanded threefold between 1890-1900 so that he could benefit from purchasing economies of scale and compete with contemporary rivals such as Liptons. From then on the company, still under family control grew from strength to strength. By the 1970s it had reached the scale of operation that merited public status and as such was the biggest ever flotation on the stock market in 1973. Family descendant John Sainsbury was Chairman during this period – he remained in control from1969 until 1992. During his stewardship the company pursued a strategy of growth through market development into new geographic areas and new store development in the shape of large out of town outlets, beginning with Telford and Cambridge. It also expanded into the north of England and Northern Ireland. These new formats allowed for a much larger product range and spurred on new product development and innovation - for example, Sainsbury was the first in the market with own branded wines. In a ten year period to 1994, its product choice had more than doubled and included product ranges to suit changing consumer tastes such as exotic fruits, reduced fat products etc. Its strategy of innovation also utilised the development of technology through computerised stock control, in store scanning and sales ordering, all of which enabled the company to gain a competitive advantage and become the number one food retailer in the UK.

The company is the third largest food-retailer in UK and has a share of around 16.3 percent of the total market. The company after leading the UK food retail market for decades faced a downfall during the 1990's. At present, the company is trying to retrieve its position in the UK market and expand its global market share.

SAINSBURY'S is a public limited company registered in the London Stock Exchange and FTSE 100. It is one of the leading UK food retailers and had been part of the financial and property sector. Sainsbury's started with the fresh foods and later enter the market for packaged food products. It mainly focused on the dairy products, however, it was the first retail food chain to improvise, petrol stations, fresh food and poultry counter in their retail stores.

Sainsbury's was among the first few organisations, which hired women employees during the World War, since most of their male employees had to be there in the war front. They develop a separate and exclusive training programme for their women employees who will help them work effectively in this new environment.

LOCATION AND STRUCTURAL STRATEGIES

Since early period, Sainsbury's built in the concept of departmentalisation in its stores. Its early food stores were divided into 6 departments, dairy products, ham and bacon, poultry and game, fresh meats, cooked meat and groceries. It was an unique concept at the 1900's which shows its innovative thinking from its startup. A company's store location plays an important role in its business. In the case of Sainsbury's, it has always chosen a central position in the parade for a larger display and better connectivity to overcome the constraints relating to limited vehicles for home delivery. It was the first retail store chain to bring in home delivery service in UK. All these strategies helped the business to grow and become a pioneer in its field. The organisation also pioneered in the self service supermarket in UK between 1950's and 1960's.

ORGANISATIONAL STRATEGY

The organisational upbringing of Sainsbury's has been pretty different from that of its competitor e.g. Tesco. Unlike, Tesco, Sainsbury's relied on the family mode of business. The company went public in 1973; however, the major shareholding has always been within the family till 1990's when the major shareholdings by the family were divested following a strategic downfall, Following the diversification of the shareholdings in 1995, the major share holding is with QIA, a foreign investment company.

SAINSBURYS COMPETITIVE STRATEGY

Sainsbury's started its journey as a grocery chain aiming at producing quality goods at affordable price. The ...

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ORGANISATIONAL STRATEGY

SAINSBURYS COMPETITIVE STRATEGY

Sainsbury's started its journey as a grocery chain aiming at producing quality goods at affordable price. The organisation's aim of producing “quality goods at affordable prices” can be treated as its market entry strategy. Low-pricing strategy is an integral part of the business-level strategy. It helps the organisation enjoy a competitive advantage over its competitors. Low-pricing strategy aims at producing quality goods but at lower prices than offered by its competitors. the key challenge lies in structuring the cost in a manner that will help the organisation to enjoy a sustainable advantage following the low pricing strategy. In regard to this scenario, Sainsbury's has developed a unique cost structure by developing close relationships with its suppliers and by irradiating the agents in between. Both these policies helped the organisation enjoy a cost advantage over their competitors.

STORE FORMATS

The company adapted the hyper-market policy during the early 1970's following its competitors. The company operated this format of stores through bigger outlets (over 45000 sq.ft ) and varied range of products under the brand Sainsbury Savacentre. The supermarket (average of 34000 sq.ft) the hypermarket store format only differ in the size and the quantity of product variants offered by the two types of stores.

The company also followed the concept of convenience stores followed by the other food retailers like Tesco, The Cooperative store, etc. This store format is also be termed as local store and is meant for a local market, much smaller in size (between 2000-6000 sq.ft) with limited variants offering top-ups and go and grab deals.

FRANCHISING

Unlike its competitors, Sainsbury's does not involve franchising. Tesco recently has planned to go for a franchising in order to enter further into this multi-billion dollar market of retail groceries. Its considering the franchising scope followed the step taken by its French competitor Carrefour.

Franchising will help Sainsbury to reach a broader customer base and reach further corners which is no possible through direct acquisitions and mergers. Further, acquisitions involve managerial constraints which can be easily avoided in case of franchising.

MERGER AND ACQUISITION

In line to the discussion Mergers and acquisitions it can be rightly pointed out that the company is rightly catching up the growing model of business UK and worldwide. Its acquisitions of Bell supermarkets which operate in north east England and a merger with Shell stations will help it to grow the number of convenience stores and petrol stations in UK. The company went for a merger with Shaws Supermarket Inc. a leading super-market chain in U.S and later acquires the company accompanied by its acquisition of Star Markets. These acquisitions have helped Sainsbury's to control competition in the foreign market

OTHER MODES OF OPERATION

Sainsbury has started providing financial services through Sainsbury Bank which is joint venture between Sainsbury and Lloyds Banks. Its property management team is helping its property management business to reach new heights. The company has started diversifying its portfolio and its activities bt it will take time in attaining the aimed success.

COMPETITORS

Sainsbury is the UK's third largest food retail chain trailing behind Tesco and Asda. Tesco was the pioneer in offering the customer's several facilities like customer rewards and club points which were previously unheard of. It introduced in internet shopping for the customers that help in growing the business and building up its brand image among its customers. During 1980's and 1990's it went through couple of successful takeovers including that of William low, a Dundee based firm competing with Sainsbury. In 1997, Tesco also went into a business alliance with esso in order to get a lease of its several petrol filling stations.

In July 2001 Tesco became involved in Internet grocery retailing in the USA when it obtained a 35% stake in GroceryWorks.In 2002 Tesco purchased 13 HIT hypermarkets in Poland. It also made a major move into the UK convenience store market with its purchase of T & S Stores, the owner of 870 convenience stores in theOne Stop, Dillons and Day & Nite chains.

Tesco and Sainsbury growth structure mainly differs. Tesco has mainly focused on the growth through takeovers, acquisitions and mergers on the other hand; Sainsbury's growth was mainly based on organic growth.

Growth through takeovers, acquisitions and mergers has helped Tesco to gain better and more market knowledge, technological knowledge and management knowledge. Whereas, organic growth for Sainsbury's has taken through a longer period of time, it can be concluded that Tesco and Sainsbury's have some structural similarity. On the lines of structural strategy, it can be concluded that Tesco follows a more diversified activities by using several variants like, Express, Metro, superstore, Extra and Homeplus which helps them to reach larger number of customers with different kinds of variants.

it can be said Sainbury's has several strategical differences with its leading market leaders Tesco and Asda, however, it has started working on its set back and is currently responding to the organisational and social needs in a better way. On analysing the retail food market and the activities of the major market leaders, it can be predicted that Sainsbury's will enjoy a fast and steady growth following the path of organisational mergers, takeovers and most recently franchising. All these will help Sainsbury to grow at a faster pace.

Sainsburys now focuses on 5 values that make them stand out from the rest of the retailers,

GREAT FOOD- Over the coming year they will train 500 new counter staff and café staff. Six food colleges will provide training for food preparation, 18000 trained workers in the bakery, fishmongery ,butchery and delicatessen areas.

COMPELLING GENERAL MERCHANDISE AND CLOTHING- The TU clothing brand now the 7th largest in UK, last year pronounced a partnership with tv personality Gok Wan to create a new range of womens wear. Growth rate of over 20% on general merchandise to include books, music, textiles etc.

COMPLEMENTARY CHANNELS AND SERVICES- Customers now have far more choice of how, when and where they buy. At Sainsbury’s, this could mean a large supermarket shopping trip balanced by more frequent and local top-ups, with the option of ordering online, from a range of devices, either for collection or delivery. Growing no of shoppers now using click and collect, available in over 900 stores, offering the largest collection network in the UK. Online grocery orders over 165000 a week, annual turnover of £800M. This makes sainsburys now 2nd in the market and fastest growing retailer. Sainsburys now offers over 6000 own branded goods.

DEVELOPING NEW BUSINESSES- Sainsbury's Bank has enjoyed another successful year, with pre-tax operating profit up 40%. Sainsburys now expanding their pharmacy , many customers already using their pharmacy services to include flu vaccinations, cholesterol testing and healthy eating advisors. In JAN 2012 Newton abbot was the first store to have a GP surgery, while 5 others have dental surgeries. Sainsburys Energy in partnership with British Gas have over 120 experts in store offering energy deals, solar power and insulation products.

As the UK's leading retail user of anaerobic digestion ('AD'), which converts organic waste into energy, sainsburys became a strategic partner and investor in Tamar Energy Ltd in February 2012.

GROWING SPACE AND PROPERTY VALUE- This year 19 supermarkets, 28 extensions, and 73 convinience stores opened, the strategy for growth is convenience stores,extensions, and new supermarkets. In 2011 they opened their 1000th store in Irvine Scotland, the value of Sainsburys property is estimated at £11.5bn.

Sainsbury use new technology in marketing strategy .Sainsbury take order online and telephonic. They sale the product online. Sainsbury is a very successful company that follows a very simple business model of trying to keep product prices down. Sainsbury's launched Supply Something New, an innovative scheme to make it easier for small and medium-sized suppliers to gain access to Sainsbury's and make locally produced food available to more customers.

Sainsburys has to move with the times in keeping up changes within the business world due to macro environments ( PEST ) political, environmental, social and technological changes means businesses have to keep up with new legislation, laws, practices etc.

Political Factors- The political factors can be local,national or international. Many governments can be involved

The Government of United Kingdom is decreased corporation tax So big companies like Sainsbury save money.

As the EU expands to more Eastern European countries, the opportunities to add new destinations to the roster increases resulting in increased destinations and possibly more customers.

Increasing globalization, presents a challenge to Sainsbury's. The challenge will be to compete against unknown forces.

The government encourages retailers to provide a mix of job opportunities from flexible, lower-paid and locally-based jobs to highly-skilled, higher-paid and centrally-located job

Economic Factors- factors have large impacts. Fluctuations in the stock market, or tax increases, can seriously affect the bottom line of a company like Sainsbury.

In recession period inflation rate was increased due to this factor rising the purchasing cost for the Sainsbury's. This may be impact on the margin of the organisation.

increasing global food crisis so prices of food's also increased.

Rising of the fuel prices, its effect on supply chain of Sainsbury's leading to an overall situation of increasing prices.

The credit crunch might decrease the purchasing power of consumers and though they will still buy the essentials they may be more cautious. They may also spend less on luxury items.

Social Factors- factors can vary from the impact of immigration, to changes in fashion. Every country has cultural norms, values, beliefs and religion which can affect the organisationdue to the increasing level of obesity within the UK ,consumer shift towards healthier food. This is best opportunity to Sainsbury's to sell more healthy food or create healthier foods in low price than competitor so as to benefit from this new trend.

In new trend People have no more time, Sainsbury's supermarket can offer everything in one place and in less price and it opened 24 hours.

People shopping pattern are also changed people like to go supermarket than smaller market.

Technological Factors- The growth of the economy is closely related to the number of innovations. New technologies have had a great impact. For instance, online shopping has become a major factor in Sainsbury's recent success.

Using the new technology Sainsbury's use new way of marketing like internet, telemarketing and the organisation can advertise their product much faster .

New till systems new shopping method and new ways of payment make shopping faster and easier.

One of the downsides of supermarket shopping is the queuing system customers often find themselves in at the checkout. Self checkout machines, employed by Sainsbury's can help solve this problem

By using internet people buy the product online so people save time and also save transporting money. Sainsbury's provide free home delivery services.

Conclusion

Sainsburys started out as a family run business and is now multinational business, over 140 years of providing a service to its customers it has seen some major changes, Primarily it became a PLC in 1973.

Family descendant John Sainsbury was Chairman during this period – he remained in control from1969 until 1992. During his stewardship the company pursued a strategy of growth through market development into new geographic areas and new store development in the shape of large out of town outlets, beginning with Telford and Cambridge. It also expanded into the north of England and Northern Ireland. These new formats allowed for a much larger product range and spurred on new product development and innovation - for example, Sainsbury was the first in the market with own branded wines. In a ten year period to 1994, its product choice had more than doubled and included product ranges to suit changing consumer tastes such as exotic fruits, reduced fat products etc. Its strategy of innovation also utilised the development of technology through computerised stock control, in store scanning and sales ordering, all of which enabled the company to gain a competitive advantage and become the number one food retailer in the UK.

If Sainsburys had not changed and adapted along with its competitors like Tescos, Asda etc the supermarket would have fallen by the way side and possibly gone out of business, due to technological advances all business have to keep up with modern technology or risk losing their customers. In the modern shopping era customers want to consume large and fast and internet retail has enabled this.

Sainsburys has been very successful in implementing changes and adapting to its environments and customer needs, Sainsburys has innovated and adopted new business ideas in keeping up with their competitors, today it has Sainsburys stores, sainsburys entertainment, sainsburys energy, finance and property to name a few. April 2012 saw the launch of Mp3 music downloads, which marked the start of an exciting journey for Sainsbury’s which continues through eBooks and digital video in the coming months.