RETAIL BUSINESS STRATEGY – CASE STUDY OF SAINSBURY

TABLE OF CONTENTS

Introduction: 3

Background of Sainsbury: 3

Vision and mission statement of Sainsbury. 4

Current market position: 4

PESTLE analysis of UK economy: 6

Critical analysis: 8

Recommendations: 8

Conclusion: 9

References. 10

Appendix- 1: 12

Introduction:

Established in 1869 by John James and his wife Mary Ann in a partnership retailer store, presently it is the third largest retail supermarket chain in UK market with a total market share of 16.3%.  Sainsbury is the UK’s oldest and major food retailer. In the early of 1990 Sainsbury was the market leader, however due to some reason it lost its position to Tesco and come in third position in terms of leading retailer in UK (J Sainsbury plc. 2015). The downfall involves several reasons, such as lack of innovative marketing strategy, unhealthy acquisition in Egypt, changing management and misleading in sustainability aspect, which obstruct in communicating right message to the customers.

Background of Sainsbury:

Sainsbury is looking to drastically their business operation by launching new outlets across the south of England. The company had opened fifty high street shops in England by 2014 which significantly has boosts the employment opportunities in the respective area (RetailWeek. 2013). However, the company is looking for international market opportunities from the last few years and already has owned a chain in the US and a chain in Egypt in addition to their core domestic business.

Based on the Appendix-1, it can be inferred that the financial performance of Sainsbury are tending to downwards in terms of profit margin.  The net profit margin was 5.50% in 2011, which dropped to 5.40% in 2013. The prime reason for drop down in their profit margin can be economic downturn, unethical business practice, and so on. In March 2013, the total liabilities of the company increased by 12.35% that implies sharp increase in long-term borrowing and trade payables. During this year, the long term debt accounts for 53.27% of total liability of Sainsbury. The increase in long-term debt helps the company establish growth in both in store and on line sales. In short, it has provided Sainsbury with a greater financial flexibility to continue its growth.

Vision and mission statement of Sainsbury

The corporate vision of the company is to be the most trusted brand in the retail market where people love to work and shop (London Evening Standard. 2015).

Belonging from retail chain, the mission statement of Sainsbury is to be consumer first choice for food, delivering high quality product to the customers and provide great service at competitive price by working in a simpler and innovative manner.

Current market position:

Being a third largest retailer and longest standing in terms of food retailer, presently the company is operating in 537 supermarkets and 335 stores. The company serves more than 19000 customers on weekly basis. In order to diversify their business expansion, Sainsbury forms a merger with Lloyds Banking Group and jointly establish Sainsbury Bank, which help them to expand their financial service. After that,  Sainsbury also involved in property investment business with the two joint venture with The British Land Company PLC and Land Security Group PLC.

In reference to the series of business expansion, currently Sainsbury is on the way to three-segment business development. They are providing retailing service as well as financial and property investment service.  The latter two segments are completely different from the grocery retailer and they obviously plays more indispensible role for the business development of Sainsbury. The grocery sector of the company is extremely competitive with different retail companies in UK market, for instance, Tesco, ASDA and Morrison. The market share of these three company adds up to 75% over the total retail market of UK. Tesco is obviously in the leading position but ii is not so powerful to monopolies the market. The other retail companies including Sainsbury also hold a strong competitive market position in this market. The market share of Sainsbury raised 0.1% from 2012 to 2013 while its key competitor ASDA has lost 0.1%market share dueling this period (Make wealth History. 2015). It reflects that the outperformance of Sainsbury is effectively attracting customer’s day-by-day. It also ensures sustainability of the profit growth in the future days.

Figure 1: Fluctuation of Sainsbury’s hare price of in the last 6 months

(Source: Yahoo Finance.UK, 2015)

As depicted in the following table, the share price of Sainsbury during the last 6 months has not fluctuated heavily. The share price in September 2014 was 290, in October it fall at 230, in November it was near around 240, in December is was 238 and in February it was around 260. However, after February the trend in share price moving towards upward direction which assurance increase in future share price.

Critical analysis:

The PESTLE analysis will help to analyze the impact of political, social economic, legal, environmental and technological factors of UK economy on the operating process Sainsbury in the competitive market.  The Pestle analysis of Sainsbury and UK economy reflected a variety of factors that are influencing the business process of the company. The political aspects as discussed in the Pestle analysis given in the appendix (Please refer to appendix 2) reflects the influence of government decisions taken on the business firms. One of the examples of political influence on corporate practices has always been described by the political relationship between two countries which also affect their trade relationships. Apart from this, economic conditions of the nations also largely depend on the international ties. The import and export taxes, currency fluctuations, etc are some common issues faced by multinational organizations such as Sainsbury’s. The development of the economic structure of nations is supposedly to strengthen the trade relations between the nations and developed a global business platform.  However the growing population is a plus point for retailers as the market scope is also expanding with the growth in demand. Chernev (2010) estimated that by the end of 2025, the demand in the market will overcome the capability of supply of the organizations. The socio-cultural influence is expected to decrease because of the limited supply supported by scarcity of resources. On the cultural and ethnic influence on the business operations, products and services will also decrease in the future. However, in the present scenario these are formidable forces to reckon with. The technological challenges are amongst the most supporting and challenging factor for business growth in the contemporary as well as the business scenario.  Along with the growth in technology, business houses will be able to ease out their management processes and reduce the cost of operations. But the environmental challenge is the most significant aspect in business decisions considering the urge for developing sustainable business practices.

In accordance to the political factor, UK government has decreased corporate tax on the food products (j- sainsbury. 2015). This expectation indicates that Sainsbury can expand its business in the emerging market even though, until now they do not have any plan in this regards. Being a food retailer, Sainsbury always enjoys high market demand of its products. UK customers generally do not spend more money on luxury items that has enlarged the profit margin of Sainsbury. In order to avoid health disease, like obesity, UK government alerting people to eat healthy foods. In this regards, fresh and healthy food is the traditional advantage of the company. Through the application of technological advancement like internet and logistics, Sainsbury provides its customer online-shopping facilities (Quantica. 2013). The growing concern topers green issues have make the company concern about the balancing its public image and growing costs. Finally, as the company has more employees with lower wage rate, it is challengeable for the company to sustain its same market position in future days too.

Recommendations:

One of the major gaps identified in the above discussion is that lack of online service facilities. Nowadays, customers prefer online shopping rather than going to the stores and purchase product through queuing system. Thus, Sainsbury can provide its customer online shopping facility through which the customers can buy products through internet. With the help of internet, it lasso provides its customers 24 hours customer service. The overall financial performance of the company remains quite stable due to its long-term debt capital.  However, due to fall in debt of capital of the company, it is better for the company to replace their short-term debt with long-term debt. It will reduce their financial risk and encourage their long-term sustainability. Finally, the product range of Sainsbury mainly focuses on food items. Sainsbury can increase its product range into various grocery products. It will help them to diversify their risks as if one part is struggling, the other parts still be profitable.

Conclusion:

The above study has focus on the marketing forecast of UK retail market with special reference to Sainsbury. After analyzing the entire scenario, it can be conducted that Sainsbury is well-loved by its customer and have maintain their position in an effective way. However, some issues like limited range of products, lack of online shopping facilities etc. as identified from the PESTLE analysis, are hampering the business position of Sainsbury in UK retail market. It needs to overcome these challenges by implementing the recommended solutions and challenging Tesco and ASDA as a competitor in the UK retail market.

References

Bracker, J.S., Keats, B.W. and Pearson, J.N. 2008. Planning and financial performance among small firms in a growth industry, Strategic Management Journal, 9(1). pg.591-603.

Chernev, A. 2010. Strategic marketing management. 5^th ed. London: Prentice Hall.

J Sainsbury plc. 2015. About Us. [online] Available at: < http://www.j-sainsbury.co.uk/about-us/> [Accessed: 10 February 2015]

j- sainsbury. 2015. Sainsbury’s Corporate Responsibility Report. [pdf] Available at: < http://www.j-sainsbury.co.uk/media/171822/cr2011_report.pdf> [Accessed: 10 February 2015]

London Evening Standard. 2015. ‘I’m not an ethical bag’: Sainsbury’s ‘green’ bag not organic or fair trade. [online] Available at: < http://www.standard.co.uk/news/im-not-an-ethical-bag-sainsburys-green-bag-not-organic-or-fair-trade-7211714.html> [Accessed: 10 February 2015]

Make wealth History. 2015. WHICH IS THE MOST ETHICAL SUPERMARKET?. [online] Available at: < http://makewealthhistory.org/2009/03/10/which-is-the-most-ethical-supermarket/> [Accessed: 10 February 2015]

Quantica. 2013. Sainsbury’s to expand convenience stores business. [pdf] Available at: < http://www.quantica.co.uk/food-and-beverage-news/operations/sainsburys-to-expand-convenience-stores-business> [Accessed: 10 February 2015]

RetailWeek. 2013. The Sainsbury’s Plan for growth. [online] Available at: < http://www.retail-week.com/stores/the-sainsburys-plan-for-growth/5024709.article> [Accessed: 10 February 2015]

Yahoo Finance.UK 2015. YAHOO FINANCE UK & IRELAND. [online] Available at: < https://uk.finance.yahoo.com/echarts?s=SBRY.L#symbol=SBRY.L;range=6m> [Accessed: 10 February 2015]

Appendix- 1:

Table: Financial Performance of Sainsbury

(Source: J Sainsbury plc. 2015)

Appendix 2:

PESTLE analysis of UK economy:

Since Sainsbury is come under the retail market of UK, therefore an attempt has been made to do a PESTLE analysis of the UK retail market. This analysis will help to define current market position of the company.

Figure 2: PESTLE analysis

(Source: Created by Author)

Political: The advent of globalization has imposed challenges as well as opportunities on the retail market. Now the retail companies are easily can go into the emerging market through the joint ventures or partnership (Chernev, 2010). In addition to that, the government also decreased the corporate tax from 30% to 28% that helps the retail companies to invest more money into the business.

Economic: Food products are essential commodities and there prices are increasing all over the world. Even in the economic downturn, consumers spend their money in the food products and cut down from the luxury items. So, companies with food item always enjoy huge market demand from the customer segments.

Social: Presently, consumers in UK market are giving more importance on the fresh and easy style cooking food items. This serves an opportunity for the companies like Tesco and Sainsbury to invent new recopies that are easy to cook. Besides this, UK government also encourages food-retailing companies to manufacture more healthy food at cheaper price.

Technology: Majority of the UK retail companies were followed queuing system in which customers has to queue up for every few items. For supermarket shopping, most of the consumers in UK economy do not feel comfortable with the queuing system (Bracker et al. 2008). In this context, technological modifications become necessary tool to improve overall business performance.

Legal: The government laws regarding food and drinks market are very much flexible. One of the new regulations that any companies under the UK retail market have to abide is rising the minimum wage from £5.80 to £5.93. It imposes additional burden on these companies.

Environment: Most of the companies from various industries are concentrated on reducing the level of carbon footprint. Various ethical issues like treatment of animals and sale of organic food affect retail companies. Because of these issues, companies are fails to maintain their control over price range.