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Business Analysis of Sainsbury
The world has become more competitive, dynamic, uncertain and volatile than ever before (Dowling et al, 1999; Kanter, 1991). 'To be successful, many firms have to compete on the global playing field because the costs associated with the development and marketing of new products are too great to be amortized only over one market, even a large one such as the USA or Europe' (Bartlett and Ghoshal, 1991). [Gordon G. George and Ditomaso Nancy (1992), p 6-7.] The UK markets are moving at a fast speed trying to build a market share in global markets, with the advent of the EU and free border for International trade, competition has increased tremendously. Companies now need to have sustainable competitive advantages, different marketing mix which hold a great appeal to the customers and marketing opportunities which land them in the right place with the right people. Survival is a big issue when bigger companies are swallowing up the smaller players in the market, there are constant price wars and mass advertising is used as a tool to pull down the competition. Professor Theodore Levitt of Harvard University (1983) argues that improvements in communications and growth in international travel have resulted in the emergence of demographically similar consumer segments across various regions on the globe. The emergence of similar culture and consumer taste can be seen with fast food, rock music and fashion becoming global trends. It is clear that brands that extend beyond national borders must symbolise universal desires and consumer preferences to a specific segment in a number of geographical regions. This applies to supermarkets retail brands such as Sainsbury, Wal-Mart, Tesco, and Carrefour among others. The emergence of these segments has enhanced the opportunities for growth of international companies. Since the consumers are also now realising the extent to which competition has invaded all aspects and segments, they are more knowledgeable about their choices and preferences in terms of price, quality, and value for money and variety. [Kotler Philip (2003), p 30 – 45]
The UK retail segment has always been in the midst of controversial issues regarding company performance, international competition, price wars and change in strategy. Sainsbury is a well-known household name in retail segment. J Sainsbury plc the company that is at the heart of this discussion is the parent company of Sainsbury Supermarkets Ltd; on a more common note it is well known as "Sainsbury's". J Sainsbury group also has additional ventures in the property and banking sector, although the revenue earner still remains the supermarkets. In the year 2000, J Sainsbury plc had undertaken a new venture in the DIY store chain but unfortunately had to sell it due to bad performance. The company was first established in the year 1869, from then on the organisation has strived to establish itself through all the changes in the corporate world in fast moving times. Since Sainsbury's the supermarket chain is the main revenue earner and group company, the paper would be based on their strategic decline and place in the corporate world. 'As of now the organisation has more than 535 stores, 238 gas stations and 145,000 employees serving 13 million customers per week', astronomical figures to go by. It one of Britain's long serving grocery retailers, which has been extremely successful and created brand value in the market. In recent times this position has been slipping due to internal as well as external factors. The following reasons were jointly responsible for the decline –
- Increasing Infrastructure costs
- Stronger and consolidated competition from other stores
- Price wars versus quality and service factors
Sainsbury has faced immense internal problems, one of which was the thinking that the organisation could give up on the 'price' factor and concentrate on refurbishing store look and supply chain improvements. Their market and share loss to Asda is proof that price is a key aspect of the marketing mix which is important to customers. TNS's Edward Garner said: "This is a considerable shake-up at the top of the British supermarket rankings. "Asda's growth is reflective of the recent success of supermarkets promoting themselves on price promises." [http://news.bbc.co.uk/1/hi/business/3112689.stm]
When organisations undergo strategic changes they need to consider the implications of the internal as well as external environment. In today's competitive environment it is virtually impossible to overlook the market conditions and competition, since both have long lasting affect on an organisations performance.
It was in the year 2000, that the organisation realised the numbers were not very forthcoming in terms of success. The share price drastically against all market expectations and forecasts, the operating profit fell by 23.3%; there was a need to bring about radical changes to turn around the business performance. The appointment of Sir Peter Davis as the new CEO of Sainsbury's was a step in this direction. The three arenas identified by the board under the careful supervision of Sir Peter were: Stores and Customer Service, Supply chain performance which is integral to any retail business and lastly increasing efficiency and enabling IT solutions to help achieve all the above. Business Transformation in the year 2000 was a six step strategic program to change all the faults within the organisation and stores.
"The board had jointly verbalised six important strategic objectives for the business transformation program:
- The store needs to create a new and differentiated market position which will help dispense continuous shareholder value;
- The customer shopping experience needed a dramatic change, this could only be achieved through an in depth study of the target audience, the operational models used by the stores and also through service drivers;
- The customer shopping experience would also improve with changes in the roles of the store managers and their respective teams;
- Complex systems and processes are the bane for efficient working. If one were to make the process simple and easy to comprehend, the functioning would be far more effective.
- The organisations needs to set an example among the community and employee base, it needs to be high performance, the infrastructure needs to be rigorous, nimble, customer centric and of the highest quality.
- One would also need to influence new potential and prospects in B2B, E-commerce, B2C channels while take full advantage of the synergies of the group."
Though the business transformation plan was a strategic move towards making inroads into areas where the company was lagging on larger grounds, it needed implementation across the length and breadth of the organisation.
The above is a background and a foundation for J. Sainsbury plc, the company has undergone changes while battling market pressures as their premier position has slipped. Sir Peter Davis was brought in to bring about radical changes to company strategy, market structure and maybe even organisation culture and structure to rectify the damage sustained in recent years. The need for an explicit strategy stems from two key attributes of the business organization: first, that success depends on people working together and second, that this must be accomplished in the context of rapidly changing conditions. . [Ansoff H. Igor (1969), p 180-184] Organisations in current times need to have a very strict view on their corporate strategy, their marketing plan, competitive advantages, and ability to adapt and change if needed. To do all this organisation needs to know key information about the customer segment they are dealing with and competition, both existing as well as prospective.
It would help to undertake a SWOT analysis of the company to understand the key strengths, weaknesses, opportunities and threats that the organisation might be able to explore.
Strengths – The Company has been around for a substantial period of time, they have a string brand presence, and the word Sainsbury instantly brings a supermarket to one's mind. The branding and marketing have been key strengths of the company since they have been able to distinguish in the minds of the customers what the company stands for. They are a highly visible organisation with supermarkets across UK and in other nations as well. The orange colour used for the Sainsbury logo is very traditional and pivotal to the campaign.
Weaknesses – Although the company has a strong brand value, as a customer it is difficult to slot them in a specific category. The differentiating competitive advantages are clearly missing. The company lacks on this front since they have not been able to create a market, which helps differentiate them from other supermarkets with regards to price, quality, customer service, access to inventory or variety. Successful business strategies are those that use the capabilities of the firm to address customer needs in a way that leads to a sustainable competitive advantage; the features of competitive advantage is that it is highly desirable, hard to define or measure and may even be imaginary. [Macmillan Hugh and Tampoe Mahen (2000), p 85 - 87] In their weak attempts to overcome the weak situation they tried bringing changes to the shelf space and inventory display, which was disastrous. It only ended up making the customers more confused while shopping.
Opportunities - The organisation has the resources and capability to make improvements with the help of information technology and new applications. They also have a great opportunity to win back the trust of their target customers through better customer service. Loyalty programs are great ways of ensuring that there is repeat sales and committed customers. The company also has stake in the financial services sector, though there might be new business opportunities to explore, one must not forget the core of the main business model.
Threats – There is a lot of competition from other players in the supermarket retail segment. Due to this heavy competition, there is scope for a lot of price wars, which only end up hurting the organisation infrastructure; it does not actually help in passing the cost benefit to the customers. The company has diverse operations, though the main strength lies with the supermarket business model, the financial services sector is still open, in their stance to expand thy might end up hurting their image and company efficiency. All corporate strategies need to have a clear focus and end objectives, which need to be aligned across the organisation structure. An increasing threat also comes from international competition; there are German and American chains, which have set shop in the UK retail segment. Porter (1980) developed a framework for analysing the nature and extent of competition within an industry. He argued that there are five competitive forces, which determine the degree of competition within an industry. Understanding the nature and strength of each of these five forces within an industry assists managers in developing the competitive strategy of their organisation. [Campbell, Stonehouse and Houston (1999), p 114-116]
This SWOT analysis helps get a clearer picture on what plagues J. Sainsbury plc, the organisation still stands in good stead and can make changes to overcome this brief decline. An organisation's culture is very important to its efficient functioning. The organisational culture is a deeply embedded game of beliefs, values and norms. "Organization culture is the collection of relatively uniform and enduring values, beliefs, customs, traditions and practices that are shared by an organization's members, learned by new recruits, and transmitted from one generation of employees to the next." [Huczynski Andrej & Buchanan David (2001), p 50 – 60]
If we take the example of GEC Marconi, the company suffered a great deal due to its inherent culture and structure, which could not adapt to changing times and external market conditions. GEC Marconi was an extension of Arnold Weinstock's personality; the culture of an organisation is mostly a replica of its leader in a lot of situations. Though J Sainsbury has no powerful leader to abide by, there have been many who have contributed immensely towards bringing the organisation to the level where it stands now. The information available reflects that the organisation is clear in its goals and objectives of providing a good and healthy shopping experience for its customers while they are at the Sainsbury supermarkets. They have been contributing towards humane issues and thus fulfilling their role as part of corporate governance. The organisation does have some remnants of what could be seen as a bureaucratic organisation in pockets, which could delay decision-making and block open communication channels between the organisation and employees. "Bureaucracy is a form of organisation structure that is characterised by a specialization of labour, a specific authority hierarchy, a formal set of rules, and rigid promotion and selection criteria." [Huczynski Andrej & Buchanan David (2001), p 50 – 60]
The company has meetings to ensure that the shareholders are getting value for the money they have invested in the organisation, also to revisit the strategy deployed and the issues, which have emerged. The organisation seems to have a fair amount of autonomy in their respective job levels with clear guidance from top management. Since Sir Davis was brought on board to resolve the declining position Sainsbury found itself in, it shows responsiveness on part of the senior management. Sir Peter Davis also introduced IT capabilities to tackle customer service, logistics and supply chain issues, inventory control and management of shelf space. The organisation has integrated IT capabilities across their systems and processes to complete the change management procedure. The organisation also seems to care for their employees and staff with all the performance management programs they have introduced as well as a 24-hour help line to deal with grievances. All this is done in confidential surroundings with complete support from the line managers; human resource management is integral to the company's primary objectives.
The success of any organisation is influenced by their ability to respond to the competing pressures, there are some strategies which are chosen above the rest in the course of action which follows these could be environment based, resource based or expectations based motives. [Johnson and Scholes (2002), p 362] RECOMMENDATIONS
We will now take the help of the Ansoff Matrix which is a useful tool for strategic marketing planning to determine the position J. Sainsbury need to take. It facilitates a choice of strategic direction depending upon the need/desire to penetrate existing or new markets with existing or new products. [http://www.emp.ac.uk/linspdfs/marketi2.pdf]
The organisation has some key strength, which have been illustrated before in the paper, they now need to consolidate their position in the existing market to re-establish their values, strengths and beliefs. At the same time with so many changes in the external market condition and faced with extreme competition, they need to innovate and improvise in new markets with their existing product offering. Consolidation is a must, especially in the domestic market since that is the foundation of the business and its core values. This helps regain the image and rebuild the relationship with the existing customer base, ensuring them of the highest quality, best product offering at competitive pricing. We will now use the Bowman's Clock to help understand how do the target customers perceive the company and then understand what needs to be accomplished to slot it in a position of strength.
This is an excellent framework for determining the competitive position J. Sainbury plc holds in comparison to other players in the industry. As mentioned before they don't have a basis for significant differentiation and they need to inculcate the same in their strategy when targeting customers. The target customers need to see high value for the price they are ready to pay for Sainsbury's product offerings.
To summarise the recommendations for J. Sainsbury plc, the company needs to do the following:
- Create a sustainable competitive advantage
- Create a significant differentiation for the company in terms of price and value
- Consolidate their position in the market and strengthen their existing market offering
- Enter new markets with their offerings
- Integrate IT systems to improve their supply chain management
- Improve customer service
Under the supervision of Sir Peter Davis, the company did manage to integrate Information Technology in their processes so that inventory control and supply chain management could be improvised. The help of IT systems help process information faster so that stocks can be replenished at a faster pace, the shelf's are always stocked well and the customers keep getting the variety they are used to. All these efforts help make the shopping experience for the customers very enjoyable and satisfying.
The appropriateness of a strategy in general as well as the relative effectiveness of its various elements will be a function of much more than structure. It will depend on economic, competitive and customer factors, as well as conditions in international markets. [Asch David and Bowman Cliff (1989), p 369-371]
J. Sainsbury plc has shown a proactive stance on the declining position that the company was facing in terms of competition and other internal pressures. The senior management took upon itself to bring in a leader with the right experience, insight, knowledge and qualities who could turn around things in favour of the organisation. Though the mission was not entirely successful, it did help in bringing the main issues and founding problems to the forefront. We have already tried to analyse the organisation based on various strategic theories surroundings its strengths, weaknesses, threats and opportunities, the organisational culture, leadership, differentiation strategy and competitive advantages which could help propel further. All organisations need to constantly strive to get from one point to another, gain success when all market conditions are averse and not so committed. The strategy which was undertaken by J. Sainsbury plc was a combination of prescriptive and emergent both as in the initial stages the organisation had planned the business transformation program which was a plan with intentions backed by an environment which is compliant. As has been mentioned before with both domestic and international competition, raging price wars, customer intelligence the markets are far more volatile in current times, specially in the retail sector, given this the strategy deployed is also emergent as it is about taking one action at a time in search of viable patterns or consistency. This is the unintended order strategy. [Asch David and Bowman Cliff (1989), p 10 – 18]
All the above recommendations for improving the company's declining position will take time to come about. These are strategic changes to the way the organisation will now react to changes and assume the responsibility of catering to the way customers would view the new image that Sainsbury would like to exude. It has to be said though that the company is still ruling the roost in terms of food sales, Asda is generating more revenues through their non-food items like their clothing line, 'George'. If J. Sainsbury plc is able to implement the strategic changes and be more careful in the future about the issues which were brought up through the course of this paper, they would be able to establish their position in the retail segment not only in UK but also in other international markets that they operate in. An organisation's willingness and responsibility towards aligning its goals and objectives with the corporate strategy help diminish possibilities of failure across different business groups. Through this paper we have discovered and discussed the strategic gaps, organisation culture at J. Sainsbury, competitive strategy and leadership issues which could be responsible for the position they find themselves in recent times. Though each issue did contribute to a large extent, organisations of this size and calibre should inculcate bi annual review processes, which will help them identify problems or potential threats that the business might face in the future. Being ready for what might come is what makes organisations a step ahead than the competition. J. Sainsbury plc has the resources, manpower, infrastructure, corporate strategy and these new improvements to help them regain the status they have lost as number one in the UK retail segment. The organisation should now strive towards all the changes and a concrete implementation plan to ensure that the customers and shareholders alike receive greater value for money spent on Sainsbury's product/services offerings.
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- From the internet - http://www.emp.ac.uk/linspdfs/marketi2.pdf
- From the internet - http://news.bbc.co.uk/1/hi/business/3112689.stm