A Strategic Analysis Of J Sainsbury Marketing Essay

J Sainsbury plc consists of Sainsbury’s – a chain of 509 supermarkets and 276 convenience stores, Sainsbury’s online, Sainsbury’s property and Sainsbury’s Bank. Sainsbury’s Supermarkets is the UK’s longest standing major food retailing chain, which opened its first store in 1869. The Sainsbury’s brand is built upon a heritage of providing customers with healthy, safe, fresh and tasty food. Today it differentiates itself by offering a broad range of great quality products at fair prices with particular emphasis on fresh food, a strong ethical approach to business and continuous leadership and innovation. At Sainsbury’s products are improved and developed to ensure the company leads in terms of the ingredients used and integrity of sourcing.

Sainsbury’s goal is to improve quality shopping experience for customers with great products at fair prices. Their aim is to exceed customer expectations for healthy, safe, fresh and tasty food, making the customers lives easier every day.

Sainsbury’s brand Values-passion for healthy, safe, fresh and tasty food, their focus is on delivering great products at fair prices, they have a history of innovation and leadership and a strong regard for the social, ethical and environmental effects of their operation, and this has continued to stand the test of time.

Sainsbury’s five principles are at the core of their business:

·        The best for food and health

·        Sourcing with integrity

·        Respect for our environment

·        Making a positive difference to our community

·        A great place to work.

And at Sainsbury’s they believe that these principles provide differentiation from their major competitors and define and direct all their activities.

Sainsbury’s business priorities are:

·        Great food at fair prices

·        Accelerating growth of complementary non-food ranges

·        Reaching more customers through additional channels

·        Growing supermarket space

·        Active property management

 

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.

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 ;

Company

Industry

ROA

Profit Margin

Marks & Spencer

Retailer and Financial Services

4.43%

3.91%

J Sainsbury

Retailer and Financial Services

5.60%

3.61%

Thorntons

Retailer of Chocolates etc

8.43%

6.45%

Next

Retailer of Clothing

26.14%

13.82%

Dixons Group

Retailer of Electronic etc Goods

19.78%

14.41%

Yates Group

Retailer of Food

9.13%

13.34%

Safeway

Retailer of Food

7.24%

4.14%

Morrisons

Retailer of Food

12.93%

5.87%

Tesco

Retailer of Food and Household Goods

9.99%

5.72%

Strategic analysis of Sainsbury PLC using Porter’s 5-Force Model

SWOT Analysis

A SWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats of an organization. With the help of this SWOT analysis we will be able to find out the positives and negatives of Sainsbury’s.

 

Strengths:

Sainsbury’s has had thirteen straight quarters of growth showing real turnaround in its business. Even for 2007 it has shown an increase of 7% in turnover and a huge 450% increase in profit after tax (Annual Report 2007).It has an extremely experienced leadership team.

Sainsbury’s seems to be very well placed on green and environmental issues due to its various recent initiatives, like buying fair-trade bananas (economist.com 2008 [online]). Furthermore its help in closing down gang master has had a positive effect on the public in general. It has a positive consumer brand and it’s liked by both green activists and consumers.

It is one supermarket chain that has a clear celebrity endorsing products, leading to increased sales. “With Jamie Oliver, it has been simple for Sainsbury’s to see uplifts in sales of specific ingredients that have been featured in ad campaigns. The supermarket had to order nine tons – the equivalent of two years’ supply – of nutmeg to meet demand when it appeared in one of Jamie Oliver’s ads.

Weakness:

The takeover bid by the Qataris Private equity firm last year can have some implications as people are gravitating towards British companies and the prospect of Sainsbury’s being governed by a foreign firm can lead to consumers switching loyalties.

Unlike Tesco’s expansion plan (economist.com [online] 2008), Sainsbury’s is not present in markets other than the UK. This can lead to trouble especially if there is some problem within food retailing in the UK or if there needs to be a source of extra growth.

Opportunities:

Sainsbury’s alternative business presents a great opportunity for future growth. Its investments in property and a goal of £40 million profit through its bank seem like a good strategy to pursue.

Online sales are a great opportunity as well, since online margins are higher and investments are not huge.

Threats:

There needs to be continuous heavy investment in environmental and green issues without immediate benefits. The problem lies in maintaining a balance e.g. Bio-fuel is an important tool to curb global emissions and its use affects Sainsbury’s supply chain directly, so Sainsbury’s should support it. However, a spurt in bio-fuels has made corn dearer (independent.co.uk [online] 2008) affecting its prices within the UK and making Sainsbury’s consumers bear the brunt.

Sainsbury’s operations are subject to a broad spectrum of regulatory requirements particularly in relation to planning, competition and environmental issues, employment, pensions and tax laws and in terms of regulations over the group’s products and services.

This concludes that with the help of this SWOT analysis Sainsbury would now know where they stand. This will also allow them work on their opportunities, weaknesses and threats and build up on their strengths giving them a cutting edge.

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 less inventory and offers more efficiency. (Directions magazine 2008)

 

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.

Porters 5 Forces

 

Competitive rivalry-The retail market is enormously competitive with a very crowded market. Now, as more and more companies are trying to get into non food sectors it further intensifies the competition.

Sainsbury’s has a market share of 14.9% in 2007, steadily increasing since its restructuring programme that started in 2004 (Annual Report 2007). This is a positive trend but it lags well behind the runaway market leader Tesco, showing that there is considerable distance to cover.

Tesco, Asda, and Morrison’s are the other three big supermarket chains in the UK retail sector. All of them have a different competitive advantage over their competitors. Sainsbury’s reach in the convenience stores makes it have a larger customer reach.

Banks and building societies compete with Sainsbury bank but it is not a core business for Sainsbury’s.

Barriers for entry-Barriers to entry are extremely high in the food retail market due to a number of factors. Firstly, organised retail is amongst the most sophisticated sectors within the UK and needs a lot of investment, along with significant brand development, which takes years to establish. Secondly, retail is also at an advanced stage within the UK and most of the western world, which means there is little scope for new entrants to establish themselves.

Local knowledge is extremely crucial within the food retail sector, something that is difficult for foreign firms to replicate. This is corroborated by the presence of few global supermarkets within UK.

Threats of Substitutes- The threat of substitutes in the food retail industry is a low one simply because consumers view it as a necessity, especially in the developed world and increasingly in the emerging markets.

The retail market is always trying to converge and assimilate new innovations with respect to food products or alternative businesses, to make shopping an extremely pleasurable experience. This makes them extremely difficult to substitute.

The only major threat of substitute is an internal industry threat whereby one supermarket can lap up the business of other supermarkets.

Buyer power- Buyer power is high in this industry simply due to the presence of so many competitors selling the same products. It is only differentiated in price and consumer loyalty and increasingly on green credentials. Moreover, the switching costs are low for consumers.

As the economy goes further towards recession consumers’ needs are likely to be given more weight, increasing their power considerably.

Supplier power- Supplier power is usually more complicated as it is difficult to categorise it. It is safe to call it a mutually dependent relationship as suppliers are in itself huge companies, like P&G, Unilever, Cadbury etc. with huge brand appeal. It can be argued that if supermarkets do not sell their products consumers will shift loyalties, making suppliers very powerful. However, if the products of big companies do not reach supermarkets, their sales volumes will be affected hugely. The relationship might change depending on the situation of the big branded supplier, for example, when sales of Cadbury’s dairy milk increased through the successful Gorilla ad campaign.

Supplier power of smaller suppliers will not be considerable because of their sales volumes on dependence on these supermarkets.

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:

ƒ˜      16 million customers visiting every week

ƒ˜      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.

ƒ˜      Performing social responsibility while working with Comic Relief to raise money and help poor neighbourhood.

ƒ˜      22% market share makes them one the power key player after Tesco in the British retail industry.

ƒ˜      They have established a brand image and are considered to have the supermarket power which is ‘Locations’.

ƒ˜      Sainsbury’s marketing strategy is  to attract the middle class consumers  with an affordable cost  while maintaining  particularly  quality of the food they simultaneously.

ƒ˜      They are promoting a new section name ‘Active Kids’ to help school kids and teachers to overcall child obesity.http://www.bitc.org.uk/resources/case_studies/afe_1343.html)

ƒ˜      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. (http://www.sourcewire.com/releases/rel_display.php?relid=19562&hilite

 

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

               http://www.ciao.co.uk/Sainsburys_Bank_Loans__6914648)

 

ƒ˜      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.

ƒ˜      The adoption of RFID has brought new competitive advantage as only few companies has the privilege to use this innovative technology.

ƒ˜      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.

ƒ˜      Cutting cost , giving incentives and introducing constant innovative products is a core advantage over competitors.

ƒ˜      Sainsbury manufacturers their own products and has their own brands which helps them to produce products in a bulk quantity at a cheaper price.

ƒ˜      The company has a unique core competency which is they promote value by providing good quality products at a competitive price.

ƒ˜      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.

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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.

Conclusion:

From this investigation it can be seen through the various analyses methods used; Marketing Audit, Porters 5 Forces and SWOT, that Sainsbury’s is an iconic British food brand, well loved by its consumers and importantly profits, have improved tremendously. Although it has shown steady growth it is important for Sainsbury’s to go the next level by challenging Tesco, a competitor identified in the Porters 5 forces analysis, either by thinking of international expansion or on price. This in conjunction with its increasing property portfolio and alternate businesses should help in continuing the strong growth path, as well as tiding over threats (SWOT) in its external environment.