Sainsburys PLC consists of Sainsburys a chain of 502 supermarkets and convenience stores-and sainsburys bank. Sainsbury's Supermarkets is the UK's longest standing major food retailing chain, having 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. Quality and fair prices go hand-in-hand with a responsible approach to business. Sainsbury's stores have a particular emphasis on fresh food and strives to innovate continuously and improve products in line with customer needs.
As per an article published on the BBC news website, Sainsbury was the market leader in the U.K until 1995 when Tesco took over the number one position. In July 2003 Asda took over sainsbury's position to become UK's second largest supermarket chain.
As a marketing consultant appointed by Sainsbury PLC, through this document I shall lay down strategies which would enable Sainsbury PLC to secure its future, regain its momentum and emerge as a market leader in the times to come.
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It would be meaningful to begin our analysis through a current situations review. The purpose of analysis of our situations review is to primarily understand what may affect the enterprise in the future. In order to accomplish our objectives it would be worth assessing the external environment through:
The super market retail industry in the UK is highly competitive. According to an article published by Research and Markets, under the heading "UK Food Retailing Market Forecast (2005-2010)", large convenience stores dominate the retail markets in the UK. Seventy five percent of the total sales in the retail industry is attributed to the large supermarkets. Again seventy Five percent of the market share is held by four large players in the industry which include Tesco, Asda, Sainsbury and Morissons. The industry is projected to still witness enormous potential of growth, unlike other developed regions in the world.
According to an article published by the Oxford University press, "Michael Porter made one of the most thorough attempts to analyse the economic forces within an industry. Porter's work had an important place in the positioning school which sees the fundamental role of strategy as positioning the enterprise for the future"
Threat of new entrants: Threat of new entrant would be high when the industry appears attractive and the barriers to entry are low. The UK supermarket industry is rewarding and as discussed earlier is projected to see further growth. This makes the industry eye-catching. However there is no doubt that entry into the UK markets would require a huge amount of capital. Considering this it would be appropriate to expect entrants from developed parts of the world. I see a threat of entry from American retail giants keeping in mind the slowdown in the retail industry in the American markets. One cannot undermine the possibility of new entrants from other European regions. A recent example would include the entry of German supermarket giant Lidl which has opened up retail stores in major British cities.
Threat of substitutes: According to Porter, "Threat of substitution is high when the customer's needs can be met by buying something other than the product of the industry. The magnitude of this is reduced when there are high costs of switching or if the price performance of available substitutes is poor". In our analysis we shall consider the substitutes as the off license stores, individual groceries as well as franchised store chains such as cost cutters, Londis etc. The number of such stores have been increasing but these stores have not been successful in lowering their costs when compared to large supermarket giants. At this point of time the threat from these substitutes looks minimal due to their inability to attain economies of scale.
Bargaining Power of Buyers: According to Michael Porter, "The bargaining power of the buyers is high when buyers are able to switch between suppliers easily so that they can seek discounts or additional services in return for continuing their custom. Buyers may be powerful if there are relatively few buyers and a large number of suppliers". The bargainning power of the buyers is high due to the availability of alternatives such as Tesco's, Morrison's and Asda's. Incase the buyers are not satisfied with the offerings at Sainsbury they can easily switch to these options and the switching costs again would be low, placing the buyers in the driver's seat.
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Bargaining Power of the suppliers According to Michael Porter, "The bargaining power of suppliers is high when it is difficult to switch from one supplier to another or if the total supply of the industry is only a small part of the supplier's total output." Sainsbury is not threatened by the bargaining power of the suppliers. Considering the fact that Sainsbury would want to diversify its product range they would always be keen to search for new suppliers. Considering such a scenario the future bargaining power of the suppliers would be unpredictable.
Degree of Rivalry amongst the competitors According to Michael Porter, "The degree of rivalry amongst competitors in an industry is determined by factors such as the rate of industry growth and the strength of brand identities." Sainsbury, Asda, Tesco and Morrisons have strong brand identities and between them share 75% of the UK market. The competitors are very active. They anticipate each others moves and respond vigorously. It would be fair enough to conclude that the degree of rivalry amongst the competitors is high.
Evident from the previous section is the fact that the major competitors of Sainsbury's are Tescos, Asdas and Morissons. Each one of these are competing on both cost and value in offering products and services to the customers. Under this section we would assess the strengths of each one of these retail giants and throw some light on the threats they are capable of imposing on Sainsbury's operations in the UK.
The headlines of an article published by city AM dated 22nd July 2009 read " Morrisons was once derided. But now the city calls it the comeback kid." The article reported that Morrissons grew by 9.5 percent in the 12 weeks to 12 July compared to the same period last year. This growth was highest amongst the four competitors. Some of the strengths of Morrisons include its value chain, a capital structure which is lowly geared, as well as its potency in the 'Fresh and Frozen Food' section. Morrisons follows a cost leadership strategy wherein it places emphasis on transferring the advantages arising from low cost to its customers. Morissons was awarded the retailer of the year award at the retail week ceremony in the year 2008. With such a track record Morrisons can no more be considered as an underdog.
From the above objectives it is apparent that Tesco is keen over expanding its operations across the globe. Tesco follows a diversification strategy wherein emphasis is placed on entering new market sectors as well as expanding its product line. This provides an opportunity to Tesco to diversify its risks. Losses in a particular market can be offset through good performances in other markets. Tescos strengths in Finance, marketing and supply chain integration are its core competencies and make Tesco the market leader in the United Kingdom. Compared to 502 supermarket stores owned by Sainsbury in the U.K. Tesco own 2115 stores in the country. This makes the availability of the Tesco products easier to the consumers. It would be worth quoting Ralph Waldo Emerson here, "If you build a better mousetrap the world will beat a path to your door." Easy availability of Tesco outlets makes it a convenient choice for shoppers across the country.
Asda is owned by the International super market chain Wal-Mart. Asda's objective is to be a market leader in the U.K. The strategy employed at ASDA is somewhat similar to those followed at Tesco's. As per an article published on the BBC website Asda overtook rival sainsbury's position to become the UK's second largest supermarket chain in July 2003. ASDA stores are above average size and Asda has been filling these stores with non-food stuff too. Asda continues to be a major threat with its capability of being a market leader in the U.K. Resources are not a constraint to Asda. Wal-Mart is in a position to inject financial resources in Asda to support its expansion plans.
According to an article published by the Oxford Press university(2001) on 'Strategic Management Process, Context and implementation', "The aim of reading the general environment is to identify, at least in general terms, opportunities and threats specific to the organisation which might emerge in the future. It is impossible to keep abreast with of all the future developments. Reading of the environment is thus a matter of judgement and experience. A good reader of the general environment is in a position to take advantage of opportunities and avoid the threats, thereby minimizing risk." In order to accomplish this objective it would be worth conducting a PEST analysis for reviewing changes in the outside world. PEST analysis will provide us with a framework to react to the changes in the outside world and design a strategy which will be a fit between our capabilities and the external environment.
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The recent recessionary phase had adverse affects on the retail industry due to a decline in the purchasing power. The economy is reviving. Trends in the capital and labour markets are improving. Recently the currency exchange rate (pounds) has been growing stronger as compared to the US dollars and the other currencies, especially against the currencies of third world countries. This has been contributing towards making the imports from the developing and under developing economies cheaper for Sainsbury's and enhancing its profitability.
One of themain social factors to affect Sainsbury is the ageing population. According to McLuhan by 2020 50% of the UK population will be over 45 years old. Sainsbury will have to focus on providing more products to these categories of customers. Another implication of such an ageing population would be the availability of fewer younger people for employment. Sainsbury can tackle this issue through employing young overseas students who come to the United Kingdom to pursue their further studies. Over and above this we have recently witnessed the change in the age of retirement for women from 60 years to 65 years which will contribute towards ensuring that Sainsbury's does not face shortage of employees due to changes in demographics.
Lifestyles are getting busier. Extended opening hours and increase in online shopping are factors which Sainsbury's would have to consider in order to remain competitive in the market.
According to Adcock et.al (2004) "The pace of change in technology is such that it is likely that most books will be out of date with regard to the new technology even before they are published." The technological changes that may have effects on the change in products, processes and distribution cycles would include:
Aligned in that it conforms to the strategic intent. The test answer's the question 'Does this option take us towards where we want to go'. Feasible in that the capabilities and the resources necessary for success can be made available. This answers the question 'Will it work?'The test is required to draw on the analysis of strategic assessment. Acceptable means that it will win the approval of those who will have to approve it and those who will have to implement it.
Throughout our analysis we shall bear in mind the above tests to be able to devise an effective marketing strategy for Sainsbury's PLC.
New product lines: Sainsbury's focus has been focussed principally on growing its business in food products. Non food products such as fashion, photo-labs, pharmacies, electrical goods etc, bring bigger profit margins than food products. This strategy was successfully tested by Wal-Mart in 1999 when it entered the UK markets through Asda.
Other possible expansion in terms of product lines can include expanding its clothing ranges. Sainsbury's can attain a competitive advantage here by targeting the ageing population. Sainsbury can emerge as a retailer providing the best clothing options for mature residents. This basis of geographic segmentation will enable Sainsbury's to be the first choice retailer for mature residents, an area not yet explored by the other retail giants.
New Markets: Marketing has been described as 'making it easier for your customers to say yes'. According to Adcock et. Al(2001) any purchase decision made by a customer can be helped by making products available where potential buyers can find them. The products sold by Sainsbury are of a general and are available at alternative outlets like Asda, Tesco and Morissons. These products are not niche in nature and hence the customer's won't ought to reach them by themselves. Sainsbury has to make a thorough attempt to reach its customers. Success of Tesco in the retail supermarket industry would justify this. Easy availability of Tesco branches across the United Kingdom has contributed towards it success. As per the preliminary results publishes by Tesco in the year 2008/2009 there were a total of 2282 stores which lead to total consumer spends of £6351531000 as compared to total consumer spends of £3175543000 at Sainsbury's. Reaching new markets and finding the potential buyers will enable Sainsbury to increase its market share and compete with its competitor(Tesco).