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For successful running of an organisation both internal environment such as the employees and external environment such as the competitors, has to be taken in consideration. If both these environments are carefully controlled, the organisation would have the strength to go very far. In order to do this successfully, a SWOT and PESTEL analysis has to be carried out.
Similar to SWOT analysis, we also have PESTEL analysis which stands for Political, Economical, Social, Technical, Environment and Legal. Just like SWOT, PESTEL is also a strategic planning technique for analysing the environmental pressures on the employees or an organisation. It is a tool which can aid an organisation make strategies by helping on understanding how external environment in which they operate now and in future.
Using the SWOT and PESTLE analysis techniques I would be analysing an organisation named Sainsbury's. Sainsbury's is a leading food retailer based on the UK. It was founded in the 1869 operating 872 stores which include 537 supermarkets and 335 convenience stores. Sainsbury's also owns Sainsbury's bank. The company sells a wide range of products in addition to food products and they include things like groceries, clothing, alcohol, books, gifts, electronics, fuel, pharmaceutical drugs, home wares and a lot more. Along with supermarkets it also operates through online services (online retailing) and financial services such as the Sainsbury's bank.
Sainsbury's serve over 19 million customers a week through its different services and have a market share of over 16 percent. Its stores offer around 30,000 products and they also offer other many non-food items. Around 90 percent of the UK households have the access to Sainsbury's online home delivery service. Employing about 150,000 colleagues it is one of the biggest employers in the UK. The table below shows the financial summary of Sainsbury's. Looking at the data, it can be seen how the organisation has developed over the past years.
Source: J Sainsbury plc, annual report and financial statements 2010
SWOT analysis of Sainsbury's
Sainsbury's is one of the largest retailers in the UK. As mentioned before, Sainsbury's has a market share of over 16 percent and serves over 90 million customers a week. Sainsbury's has a wide range of products (over 30,000) which is really convenient for its customers. Because Sainsbury's have range of products and services, it means that a lot of its customers can shop for almost everything just by visiting one of the stores. Sainsbury's is also well known for its good customer service.
The product sold by Sainsbury's has something for everyone. If a customer is looking for something that is tasty as well as being good for their health, Sainsbury's sells food range called 'Be good to yourself. Other ranges of Sainsbury's products are, taste the difference, free from, basics etc. To prove that Sainsbury's ability in food retailing, it has won more Quality Foods Award than any other retailer in 2010. It is also well known for being the world's largest retailer of fair-trade goods by value.
(Sainsbury's 2010 annual report, page 3)
Sainsbury's also seems have a consideration on the going green and environmental issues. According to a survey by Consumer Focus, Sainsbury's has received an A rating in the 'Green to the core?' survey.
Sainsbury's has also proved itself as being a great place to work as over £80 million bonus payment shared between 127,000 colleagues (Sainsbury's 2010 annual report, page 6). It provides a minimum 10% discount on shopping for any colleagues who has worked at Sainsbury's for 6 months or more making it a great place to work.
Sainsbury's also has a great financial strength proving to be a great cash-generative business and delivered an operating cash flow of 1.2 billion in the year.
One of the main weaknesses of Sainsbury's is that it doesn't have any extension plans. It means that it's only market is based in the UK. If there is any problem with the food retailing in the UK, this could prove to be complex for Sainsbury's business.
In June 2008, Sainsbury's online shopping service had to be suspended for 2 days due to technical problems. This had affected more than 10, 000 online shoppers. As compensation, Sainsbury's offered £10 vouchers to its online customers. This might have affected the goodwill of Sainsbury's. (Market watch)
As the demand for lower fat food and healthier food is increasing and more popular, Due to links to cardiovascular diseases, low fats products are preferred. Sainsbury's has a wide range of products which are low in fat and healthier. In April 2008, the 2% fat milk was launched and since then it has gained a lot of popularity. The amount of sugar has been reduced by 10% in all of its squash lines. The company is thus in a very good position to benefit from the wide demand for healthy foods.
Another good opportunity for Sainsbury's in its online shopping facility as people choosing to shop online is growing day by day. Sainsbury's online shopping delivery service operates from 169 stores and delivers to over 100, 000 orders a week. This is a great opportunity for Sainsbury's to go further.
The current economic condition means that the UK is currently facing recession. Because of this, consumers are going to be more careful about their spending which could cause a great impact on the company's sales. In order to face this problem, Sainsbury's would either have to reduce its prices or introduce products which are more suitable for the current economic situation.
Another great threat is the competition Sainsbury's are facing. There are many other retailers similar to Sainsbury's, for example Tesco and Morrison's and there are also cheaper retailers such as Aldi and Lidl which also have multiple stores. This wide range of availability of retailers means that if customers are not happy with Sainsbury's for any reason, they could easily go to any other stores. This means that Sainsbury's would have to be really careful to keep up their service and maintain their reputation. Increasing competition from other retailers means that it could affect Sainsbury's margins and market shares.
The rising labour cost in the UK is also a threat to Sainsbury's. They would have to comply with the National minimum wage regulations. This minimum age also increased annually which means that the labour costs would be bigger for Sainsbury's. Although this is a threat, it doesn't affect Sainsbury's in a large scale as the income is much greater. Most of the Sainsbury's stores around the UK tend to pay their employees higher than the national minimum wage which means that it isn't that much of a threat.
PESTLE analysis of Sainsbury's
Sainsbury's is a company which is based in the UK and Ireland thus Sainsbury's performance is highly influenced by the political factors in this country.
An increased globalization could pose as both an opportunity and a challenge to Sainsbury's. It is a challenge in such that it would have to compete against unknown forces and to find the sources of the products with economical and quality values. The corporation tax is at 28% unlike a few years ago when it was 30%. This means that Sainsbury's along with other big organisations would save a huge sum of money because of this lower rate of corporation tax.
The rising cost of fuels is one of the biggest economical factors that might be affecting Sainsbury's. This rise in cost means that it affects the supply chain of Sainsbury's causing the product prices to increase. The global food crisis which is ongoing would also result in Sainsbury's having to increase the cost of their products.
One of the most evident economical factors that might affect big organisation like Sainsbury's is the credit crunch. It could have a huge impact on the overall sales of Sainsbury's as the consumers would have a lesser purchasing power thus they would be more careful on their spending and would be buying lesser luxury items which is one of the good sources of profit for Sainsbury's. This means that if the consumers start spending less, the profits gained by Sainsbury's would be less which could lead to results like Sainsbury's not being able to expand and refurbish its stores and it might also lead to job losses.
It is a known fact that the unemployment rate is constantly rising in the UK. This could pose to be a positive thing for Sainsbury's as they would not have as much problem trying to find employees for their organisation. But this could also be a problem for Sainsbury's as the labour cost has to be kept on mind. All the employees have to be paid at least the national minimum wage thus Sainsbury's would have to try and stay on the budget and not employ too many people as this could hamper the finances.
As explained in the opportunities part of the SWOT analysis, the increasing social trend in healthier foods is a great opportunity for Sainsbury's. It is the social trend like this that Sainsbury's would have to look out for in order to keep up with the consumers.
As it is known, there are many other retailers similar to Sainsbury's which are in competition. If customers are unhappy with the service provided by one retailer, they have a wide range of other retailers that they can go to, thus Sainsbury's train their staff to be friendlier and more helpful to their customers so they can drive more sales and attract more customers based on the service their employees provide. Sainsbury's also has to keep up with its market by providing products which are more socially accepted in the current market.
Sainsbury's is involved in charities, raise funds for many different causes, sponsor games, arrange social activities and many more. This shows that Sainsbury's is following the responsibility for the society and its surroundings.
The correct use of correct technologies is an absolute must for retailers like Sainsbury's. Being a big retailer, there are many things which are just not possible to be done manually. Examples of this include the checkout system and the inventory management. In order to keep up, Sainsbury's all over the country are having to constantly upgrade their technologies such as introducing self checkouts, upgrading to more efficiently scanning checkouts, computerised stock controlling etc. Having technologies such as the computerised checkouts means that there is a lesser margin for human errors and less paperwork.
The online shopping facility is also a great technological advantage for Sainsbury's. If used efficiently with a good delivery system, it can be very profitable for Sainsbury's.
The reduction of carbon footprint is has been given a lot of emphasis to big companies. Companies like Sainsbury's can contribute a lot to the reduction of carbon footprint thus Sainsbury's have to prove that they are not causing a lot of impact on the environment. To do this Sainsbury's would have to put in more towards the green issue.
There are also a lot of ethical issues which are connected to retailing such as selling organic foods, treatment of animals etc. This means that Sainsbury's would have to make available ethically acceptable products which are at a fair price for the consumers.
Sainsbury's is well bounded by many legal issues such as the national minimum wage policy, alcohol selling age legislations, discrimination and fair treatment legislations etc. For the wellbeing of the organisation, Sainsbury's would have to be pursuing these legislations; failing to do so might follow many types of consequences. Sainsbury's have to maintain different types of legal laws which include, consumer laws, competition laws, employment laws and health and safety laws.
The main purpose of organisation like Sainsbury's is to generate higher profits. Analysis techniques like SWOT and PESTEL is very useful at assessing the weaknesses, strengths, flaws and limitations. This can give a good idea of what could be improved in the organisation and what are the good points about the organisation. Overall, these kinds of analysis techniques can be of a great advantage for developing new strategies for the organisation.
From the SWOT analysis, I have analysed the strengths, weaknesses, opportunities and threats of Sainsbury's. Looking at this analysis, the organisation could build up on its strengths and look at the weaknesses to develop strategies in order to minimise these weaknesses. The opportunities pointed out in the analysis could be viewed and acted upon which could turn out to be very beneficial for the organisation. Lastly, Sainsbury's could reflect upon its threats and minimise the damage caused by these threats.
The PESTLE analysis is also a very useful strategic planning technique from which the political, economical, social, technological, environmental and legal factors are made apparent. It is techniques like this which help the organisation to go further and develop even more. Overall, I have learnt that the SWOT and PESTLE analysis techniques are very useful for strategic development and when used and implemented upon, the information and knowledge gained from these analysis is the key for an organisation to achieve its goals and flourish.