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PESTEL and SWOT analysis of Sainsburys

One of the leading names in the UK supermarket industry is Sainsburys. J. Sainsbury plc is the parent company of Sainsburys Supermarkets Ltd, commonly known as Sainsburys (also Sainsbury and JS), This is the third largest chain of super stores in the United Kingdom with a market share of 16.3%. The groups Head Office is located at Holborn in Central London.

Founded in 1869 by John James Sainsbury along with his wife Mary Ann in London and then gradually grew to become the largest grocery retailer by 1922. Sainsbury’s is the UK’s oldest major food retailer with their first store opened in 1869. It strives to keep up with its trusted heritage of quality with best services.

Past:

In the early 1990’s Sainsbury’s, market leader so far, lost its position to Tesco and in 2004 it came down to no. three after Tesco and Asda. The downfall involved many reasons including changing managements, lack of innovative strategies, failing to assess the impact of loyalty cards scheme, unhealthy acquisition in Egypt and a misleading marketing strategy which failed to communicate the right message to the consumers.

Present:

Sainsbury’s started to fight back and be noticed after Justin King took over the management role in early 2004 and came up with a revival strategy under the name of ‘Making Sainsbury’s Great Again’. The process involved a no. of mergers and acquisitions of small chains in the south east England and the Midlands. The new message of ‘Try Something New Today’ went really well with the media and the consumer led by the famous celebrity chef Jamie Oliver it encouraged buyers to innovate in their kitchens and make their food interesting.

Future:

The supermarket industry has reached a saturation point in the UK. How long can Sainsbury’s go on opening up new stores at locations such that its stores do not start to cannibalize each other?

Using the Ansoff Growth Matrix two future strategies are suggested for Sainsbury’s:

Opening up of Sainsbury’s Travels and Tours – Product Development

On the basis of the success potential in the travel business, Sainsbury’s might venture into the Travel and Tours business by way of Product Development as per Ansoff Growth Matrix tool for future strategy selection. Sainsbury’s has a very high probability of success as measured with the help of SWOT analysis and assessing the keys to success and the critical factors.

Sainsbury’s China – Market Development

Sainsbury’s might opt for the Market development strategy by offering the supermarket business to the land of opportunities China. The move will be mad after the necessary PEST analysis has been done and company’s SWT has been assessed with Chinese perspective.

Sainsbury’s - Strategic Corporate Development History: 1990 to 2004

Corporations are required to add value by mans of their business. The goal is to manage and control the businesses for a long term and sustainable success. The corporate level strategy deals with the choice of the business and the growth and development related to it.

Sainsbury’s enjoyed the position of the leader in the UK supermarket industry up to the early 1990’s. It had sustained its image of a name trusted with quality and service. British like old names with some history behind them.

The company started to lose its grip in the early nineties due to a number of reasons.

There was a change in management after the longtime CEO John David Sainsbury retired. He was replaced by David Sainsbury who bought about a change in the management style. Although the times were changing and some of the people in the management thought strongly about launching loyalty card schemes and also favored introduction of non-food items in the stores, both the options were rejected by the fresh management.

The biggest rival Tesco had gradually moved up on the market scales and the internal indecisions help it get hold of better deals from suppliers.

We will analyze Sainsbury’s approach in view of Ansoff Growth Matrix perspective. Ansoff’s matrix is a tool that helps businesses decide their product and market growth strategy.

Market Penetration:

The strategy had been the simple approach of Market Penetration Strategy. As per Ansoff Matrix, this can be easily explained as the company keeps on offering the same product into the existing market.

From 1993 onwards Sainsbury’s was unconsciously moving forward on the basis of ‘wait and see’ policy. Up till now Sainsbury’s had enjoyed the position with no real threat. It started with price cuts on almost 30 of its labels, three months after came up with Tesco Value Lime. The move affected Sainsbury’s profit margins.

Product Development:

This made the management realize to offer something new to the customers and after Tesco came up with new format stores named Tesco Metro serving the town centers in 1994, Sainsbury’s responded with announcement of ‘Sainsbury’s Central’ format. This approach is interpreted as “Product Development” strategy where a new product is introduced into existing market.  

The new project offered shopping facilities to the small towns was initiated leading to ‘Country Town’ stores. The stores were formatted keeping in mind the distance the buyers have to travel for their weekly grocery shopping’s. The new service enabled the customers to do so without going to large, out of town stores. They were mainly planned to be opened I the south east, which has always been Sainsbury’s strong hold. The 1st store was opened by the end of 1998 in Ongar (Essex). These stores have now been standardized as per the regular stores and they maintain even trading terms

Setbacks:

The company fell behind yet again in 1995 when the management failed to realize the importance of loyalty cards schemes and refused to go ahead with launch of any such offer. They had to reconsider their decision 18 months later after Tesco’s club card was introduced.

In 1996 the company ventured into opening up of Sainsbury’s Bank. In addition it acquired Texas Homecare for 290M (GBP) in 1996. These expansions had a major effect on the financials and Sainsbury’s announced first fall in profits in 22 years.

Another reason which affected Sainsbury’s sales was the perception among the customers that it is more expensive than its rivals. The marketing campaigns failed to convey the message that Sainsbury’s offers as good quality and value for money as its rivals. The marketing failed to communicate the required message of low cost and high vale and the company endured the consequences.

The year 1996 saw Sainsbury’s losing its position of market leader to Tesco.

Acquisition and Divestment:

Sainsbury attained 80.1% of share in an Egyptian distribution group SAE. The group provided retailing services in Egypt with 100 stores and almost 2000 employees at the time or acquisition. The decision was criticized by the analyst as it was made during the most testing times of Sainsbury’s history. The reason behind the decision might have been the success Tesco outside UK. However the meager results shown by the Egyptian business led to the divestment of the share and sale of shares in 2001.

The brand re-launch

In 1998 the company again went under a management change and George Bull, the new Chairman took over and decided to re-launch the Sainsbury’s Brand.

The new management targeted to revive Sainsbury’s corporate identity and started with the launch of a new logo, going for a slightly informal font and new slogan of ‘making life taste better’. Staff uniforms were redesigned

The company underwent a Business Transformation Program (BTP) after the appointment of Peter Davis who showed significant improvement in the company’s turnover and exceeded the targets. The BTP involved a 3.00bn (GBP) upgrade of the stores, distribution and IT equipment. The distribution setup included construction of fully automated depots which cost 100m (GBP) each and was later criticized by the new management.

Sainsbury’s moved into the current headquarters at Holborn in 2001. The Nectar loyalty card scheme was launched in 2002 which replaced the Sainsbury’s Reward Card.

Current Strategic Situation: 2004 to date:

At the end of March 2004, new CEO Justin King joined the company who came up with a recovery plan for Sainsbury’ under the banner of ‘Making Sainsbury’s Great Again’. It was a three year recovery plan which was very positively received by the media and the stock market.

The strategy involved laying off redundant staff from the head offices and recruiting additional staff for shop floors to increased and improved customer service quality. Sainsbury’s was having major issues with its stock availability, inventory and supply chain management. The new depot monitoring systems were to be implemented and IBM was given the deal to upgrade the system.

Mergers, Acquisitions and Divestments:

In 2004 Sainsburys new management under the ‘Making Sainsbury’s Great Again’ plan to concentrate on its strong UK customer base, divested the American subsidiary Shaw’s. It was sold to Albertsons.

The no. of convenient stores was increased through an acquisition of 54 Bell’s Stores chain which was based in the north-east of England.

Another Acquisition took place with purchasing o 114 stores of Jackson Stores based in Yorkshire and the North Midlands. The acquisition took place in November 2004.

Another small chain of 6 stores was acquired from SL Shaw lt. in April 2005.

New Marketing Strategy - Try something new today:

Sainsbury's is at a critical stage at the moment. Sainsbury's Supermarkets have gone through a period of dramatic regression, in which they have been surpassed by rivals Tesco and, more recently, in 2004, Wal-Mart-owned Asda. (Global Market Information Database, 2004). It is not easy for an established and old UK brand to vanish off from the market but the competitors have.

While it is rare for major brands to disappear completely from the UK high street, these competitors have acquired share from Sainsbury's by way of their commitment to low and attractive prices, whereas Sainsbury's has been focusing on its Business Transformation Program and has indulged itself in promoting an image of quality, and value rather than being affordable

The present day UK customers which have a huge percentage of non British are heavily influenced by the economical changes and are passing through tough times. The message which has been conveyed by the Tesco and Asda was received warmly as it assured them of a combination of quality and assurance along with low price. As a result, Sainsbury is still considered comparatively expensive just because it failed to convey the message through proper marketing.

A massive marketing campaign of ‘Try Something New Today’ was launched in September 2005, which was designed to make people go off the shopping routine encourage them to be more adventurous in food eating. Under the campaign umbrellas, the spokesperson for the campaign Jamie Oliver encouraged the customers to be. The message conveyed was it supplies quality food as well as the only one offering useful ideas to make your food interesting. The aim was to reach and convince all the customers and not only the well off.

Sainsbury's is attempting to respond forcefully to the challenges it faces, however competition in the UK market is becoming increasingly intense, and Sainsbury's faces a difficult struggle to regain the ground it has lost to rivals that continue to expand aggressively

The management has a continuous approach towards work with responsibility. They attempt to provide fresh food and innovate with respect to customers’ needs. It serves over 18.5 million customers every week. The large stores offer over 30000 products along with complementary Non-Food products e.g. the TU clothing range which has over 1 million transactions every week. Along with other services, an Internet based shopping service has also been made available, keeping in trend with the changing requirements o the customers, to almost 90% of UK households.

The company has a chain of stores with 537 supermarkets and 335 convenience stores, hence a total of 872 stores in England, Scotland, Wales and Ireland, including Hypermarkets (super large stores- Sainsbury’s stores- main plus), Sainsbury’s Central and Sainsbury’s local (supermarket and local convenient stores format – main mission). The company has been eyeing the opportunity of expanding its business outside the UK. Especially the hyper potential in Asia (especially South East Asia and China). By analyzing Tesco’s huge success in the market outside UK, Sainsbury’s venture might not be far away.

It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index

http://www.j-sainsbury.co.uk/index.asp?pageid=12

http://en.wikipedia.org/wiki/Sainsburys

Strategic Direction for the Future:

Sainsbury’s has a history of innovation and it continues to strengthen its relationship with its customers and has gone ahead with the growth of their convenient store operations, the online offers and the Sainsbury’s Bank. They have a constant approach towards developing new offers in line with the evolving customer’s demands resulting in operational growth and profitability.

http://www.j-sainsbury.co.uk/ar08/businessreview/corporateobjectives.shtml

Choosing a Strategy: A marketing tool for making the market strategy is the Ansoff Matrix, which gives us strategic choices for obtaining our business and market objectives. It offers four choices which deal with marketing and growth of existing or new products in existing or new markets.

Ansoff

On the basis of current scenarios there are two pathways for Sainsbury’s to opt from, for a sustainable growth and presence for a long time to come.

Product Development Strategy: Sainsbury’s has a huge loyal customer base. The suggested new service product through ‘Sainsbury’s Travel and Tours’ will provide these customers to utilize yet another trustworthy service by their trusted name.

Market Development Strategy: Although Sainsbury’s has not yet ventured into the International market but the step might not be that far away keeping in mind the huge success TESCO has had in the international market. Sainsbury’s could venture into international expansion keeping in mind the growing and still unsaturated markets of China and Southeast Asia.

Product Development Sainsbury’s Travels and Tours:

Sainsbury’s can opt for launching Sainsbury’s Travels and Tours is by choosing the Product Development Strategy and is introducing a new product into existing market. The growing Travel and Tours market will definitely have a positive effect on the Sainsbury’s portfolio by increasing its profits and hence strengthening its business.

Why Product Development?

The Sainsbury’s Travels and Tours will provide the company to excel and achieve its strategic goals on the basis

The supermarket industry has become fairly saturated in the UK and at present Sainsbury’s is eyeing to expand itself in the International market but it will be a while before it actually does.

The Travel industry is a growing market and has a huge potential of growth.

The new product will benefit the company earn huge profitability margins which are becoming hard to achieve I the supermarket industry.

The Sainsbury’s has a huge loyal customer base which will be utilized for promotions and marketing purpose.

The project has a high probability of success given a chance of a fresh new ‘product’ offered by a supermarket chain.

Market Demographics:

Although year 2009 has seen the worst recession since 1930, there are definite signs that the cycle is now turning.

Travel industry has suffered consequences of economic crush but the consumer confidence is indicating escalating progress.

UNWTO is expecting a reasonable growth of 5% in 2010.

There was an upward trend during the last quarter of 2009 which showed 2% upswing.

The development is further strengthen by the Air Transport Data from IATA, which shows passenger traffic strength since September 2009

Asia is expected to show the greatest recovery being less effected by the economic crush (comparatively). Growth is also expected to resume in America and Europe.

A large number of countries around the world have shown positive growth in the first two months of 2010.

Overall the total of tourists arrivals during the first two months of 2010 was 119 million showing 7% improvement as compared to 2009

SWOT

The SWOT analysis summarizes the vital strengths and weaknesses of the company. This SWOT analyses the new product line and reviews the opportunities and threats which Sainsbury’s may face

Strengths

Image differentiation with respect to Brand name

The customer to employee ratio is low

Staff is highly trained and customer focused

Loyal customer base

An interesting, diverse and new ‘product’ offered by a trusted service provider

Established network of outlets

Weaknesses

Difficulties related to finding employees with required skills and attitude

Presenting the customers with interesting offers on continuous basis

Lack of experience in the new industry

Business limited to UK only

Opportunities

rapidly growing market all over the world

Growing number of people with increasing need and desire for holidays

The existing

Utilizing the existing ‘Nectar’ database for identifying potential customers

Threats

Lingering effects of the slump in economy

Natural disaster such as he recent Icelandic volcanoes eruption

Highly competitive industry

Key to success

Sainsbury has always aimed to be the consumer’s first choice for food, delivering quality products with great service at a competitive cost.

The company is striving to achieve the objective of leading margins with diverse market and delivering strong profits every year.

The new product will benefit the company earn huge profitability margins which are becoming hard to achieve in the supermarket industry.

Critical Issues:

What can go wrong?

The Sainsbury’s already has an established huge no. of loyal customers who would be happy to have an option o a different kind of service offered from their trust worthy service provider. The expectation for a stable turnover is based on the fact that it is an established name offering a new product on the basis of its goodwill.

How likely it is to happen?

The expected growth can be effected by increasing inflation rates.

The Travel Industry faced a huge blow after ‘9-11’ incident.

What are the consequences?

Any unforeseen incident like this (God forbid) will have long lasting effects on the company’s growth, profitability and future expansions and plans.

Competitive Advantage - Nectar Loyalty Card Database

The database can provide an excellent competitive advantage because

It will help the management to design the product, offerings, and travel and tour packages as per the preferences.

The database can also be utilized to acquire knowledge about customers such as

No. of family members

Spending habits

Income estimates

Preferences with respect to food etc.

Holiday routines

Market Development Strategy:

Sainsbury’s could also opt for the Market Development strategy with offering its existing product of ‘Supermarket’ and offering it to a new market by venturing into a growing international market such as China. China is the promising power in today’s business world and its domestic market allows huge potential for international companies with promising growth.

Sainsbury’s is the third largest supermarket name in UK after Tesco, which already has a huge presence outside the UK and Asda which is owned by the industry giant Wal-Mart. The immediate rivals have other sources /markets to benefit from other then UK. But Sainsbury’s has so far only focused on the UK market and from last two decades its concentration has almost completely been occupied by gaining back the lost market shares from its competitors.

For Sainsbury’s to venture into a new market, a PEST has to be made to know the market better and plan the strategy accordingly.

PEST Analysis – China:

Political and Legal:

Since 2001, china has entered into WTO and its market is open or multinationals to trade in. In china, supermarket industry is not considered as a prestigious as some other industries so the government rules and regularities are not so tough. The government is favoring development in the supermarket industry.

Social:

The demographics of china show that population growth rate 0.629% (2008) in which the youth from 0-14 years comprises of 20.1%. The Chinese customers have become more concerned about issues related to health and safety after the 2008 melamine contaminated milk issue. As per the current shopping trends in China, people prefer to buy in person (online buying is almost non-existent especially daily grocery). The families are very small units on average maximum of 4-5 per unit in sub urban areas where as mostly population in the larger cities is singly. Chinese prefer to buy on daily basis, fresh produce as per day’s requirement.

Technology and development:

China is a vast country with underdeveloped infrastructure so there will be immediate warehouse setup requirements. Chinese households have a very low trend of keeping refrigerators at home so big weekly supplies trips will take time to adjust in the culture.

Environmental Factors:

The plastic bags have been recently stopped in china. The govt. is still trying to establish regular and long term procedures for recycling.

All these factors will be required to be kept during the planning and project development phase for Sainsbury’s China.

Furthermore we will perform a SWOT analysis for Sainsbury’s with respect to its entry in the Chinese market.

Strengths:

Over a century of supermarket and retail experience

Ambition for growth

Experience from failed International acquisitions as Egypt.

Weaknesses:

Cultural difference

Expansion will be slow initially

Opportunities:

A very large market size

Huge potential of industry growth

Govt. policies favor the Industry

Expansion opportunities in the rural/western parts of China

Changing consumer awareness with respect to shopping habits

Threats:

Immature market

Rivalry to increase immensely

Weak infrastructure

Untrained local staff

Increasing prices of raw materials

Strategic Recommendations:

Based on the above analysis Sainsbury’s should consider a slow and steady expansion strategy in China for long term results and sustained presence. Initially the stores should be opened in the urban and economically grown regions where customers will more readily adapt to change and new trend. Gradually then, on the basis of acquired knowledge, preferences, culture etc Sainsbury’s should venture into the suburban and rural areas. Sainsbury’s should use the critical factors involved in the success of the strategy such as

It should strive to obtain consumers trust by offering good quality products at affordable prices. Health and safety measures should be the first priority so that no incident like the contaminated milk will occur.

China is a big country and the company should fully utilize this factor for the locations o the stores.

The locality factor should be given priority wile employing the Chinese as trust and ownership has a great value in Chinese culture.

China is a growing country and its economic conditions will affect the pricing of the products

Sainsbury’s should work on differentiating itself from the rivals from day one for developing long tem and healthy relationship with the consumers.

Once Sainsbury’s makes its entry into China market, there is no looking back from the kind of growth and expansion opportunities it may provide.

(http://en.wikipedia.org/wiki/Sainsburys )

Conclusion:

During the last decade of 1990’s and early 2000’s saw Sainsbury’s going through a very testing time in its history. It lost its no. 1 position to Tesco and then no. 2 to Asda. Time saw Sainsbury’s make some serious lack of judgments on behalf of management decisions related to adapting to the changing times, acquisitions and divestments. The management made a serious lack of assessment while deciding for bringing out the loyalty card scheme. The profit margins were affected as the company’s marketing campaign failed to register with the consumers.

The mid 2000 saw Sainsbury’s coming out again to be a Supermarket force lead by Justin King. The new campaigns “Making Sainsbury’s Great Again” and the company’s new slogan of “Try Something New Today” succeeded in reach the customers positively.

Given the market saturation of the industry Sainsbury’s has been suggested two options for business expansion using Ansoff Growth Matrix tool.

Product Development – Sainsbury’s Travels and Tours

Market Development – Sainsbury’s China

The necessary SWOT and PEST analysis tools have been used to assess and measure the factor involved and could affect the growth suggested.

The Travels and Tours Industry promises growth based on demographics provided by the WTO and the UK travel forecasts. The loyal customers of Sainsbury’s would be more the happy to have another product offered by their trustworthy service provider.

Sainsbury’s China will provide an opportunity for immense growth of supermarket industry in a vast and massive population of China. Sainsbury’s should take a steady approach by starting from the urban areas and slowly expanding in the remaining country while studying and adapting to the new culture and country.

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