The Business Strategy that J Sainsbury Ltd Has Pursued - Case Study Example

? Analyse’ and ‘evaluate’ the business strategy that J Sainsbury Ltd. has pursued using either Bowman’s strategic clock or Porter’s Generic Strategies framework. Contents Introduction 4 Bowman Strategic Clock 5 Theories and Analysis 5 Analysis and evaluation of supporting resources and capabilities 7 Identification justification of top challenges 7 Value chain 8 Suitability 9 Acceptability 10 Feasibility 11 Conclusion 11 Reference 13 Bibliography 15 Appendix 1: Bowman’s Strategy Clock 16 16 Appendix 2: PEST Analysis 17 Appendix 3: SWOT Analysis 18 Appendix 4: Core capabilities and resources 19 Appendix 5: Porters Five Forces 20 Appendix 6: TOWS Matrix 21 Appendix 7: Stakeholders Mapping 22 Appendix 8: Financial Statement of Sainsbury 24 Appendix 9: Value Chain 26 26 Introduction Strategy is defined as how an organization and individual achieves its goals. The marketing strategies are altered as well as renewed in companies in the effort to survive and also prosper in an increasing demanding and complex business environment (Grant, 2010, p.270). The strategic imperatives have shifted towards a priority emphasis in order to develop a superior capacity to reinvest the business model (Cravens, 2010, p.20). Sainsbury mission and goal is to become the first choice of its customers in terms of food, deliver products which are of outstanding quality and service available at a competitive cost by means of working in a simpler, faster and together. Sainsbury have made fundamental changes which have transformed the business but in the course of action the company has stayed true to its heritage. Sainsbury passion towards food at fair prices and its ethical approach have remained central for their success (J Sainsbury Plc, 2012). Figure 1: Business Strategy and Objectives (Source: J Sainsbury Plc-a, 2012) Bowman Strategic Clock The strategy clock which was coined by Cliff Bowman encouraged the mangers to consider competitive advantage with relation to cost advantage or differentiation (see appendix 1). It focuses on the price of the customers and their perceived value of the goods and services. It has been argued that Sainsbury pursue a differentiation strategy while others might argue that it has adopted the low cost strategy. It could be however said that the organisation has adopted both differentiation and low cost strategy and can be termed as “stuck in the middle” (Mantle, 2012). Theories and Analysis SWOT Analysis has been performed in order to consider the internal and external factors of Sainsbury (See Appendix 3). J Sainsbury has been able to tackle the problem as it has been able to build the trust and can have faith on its customers at the worst condition. But the competition is also intense between the top four food retailers in UK and the hard discounters. It has been noted that Tesco and Asda are the top most retailers in UK and they have expanded in almost every part of the globe and this is where Sainsbury lacks and falls behind its current competitors (Mantle, 2012, p.7). Sainsbury can try to overcome its weakness by applying its strength and overcome its threat by applying the opportunity. As per the TOWS Matrix, (Appendix 6) Sainsbury has a huge opportunity to tap the emerging nations with its diversified portfolio and with its good corporate image. The online shopping has evolved over the years and with a change in customers mind set and lifestyle, and is mostly dominated by the major food retailers (Mintel, 2011). It is the second largest food online retailer in UK and its business grew by 20% over the years (McGrath, 2012). Sainsbury is also trying to develop a presence in the drugstore category but it would result in huge risk for the company as Boots has already acquired a majority of the market share (Data monitor, 2002). To tackle the external environment PEST analysis has been conducted. Sainsbury needs to consider the external environment in order to proceed successfully and take measures of the upcoming shortfalls with respect to the external environment (See Appendix 2). In order to tackle the problem, Sainsbury has adopted the policies of operating in EU and also other parts of the globe. It has joint hands with the British government to tackle the problem of obesity and have pledged to cut about 5 billion calories (Retail Detail, 2012). The year 2010 had made things worse for the retailers as the consumers were cutting back to non food items, started moving to discount stores. AT the same time the rate of inflation was high (See Appendix 2). 2011 also recorded a negative flow but however the future prospects seem to be better. Sainsbury is one of the primary shops which dominate the market for weekly shop. In order to fight back recession and inflation it has come up with convenience stores and thus has raised the standards (Mintel, 2011). Sainsbury has diversified its business ranging from food retail to non food retail outlets and has adopted the differentiation strategy. This adds on to the advantage of Sainsbury and helps to maintain competitive advantage and stay ahead of its competitors. But at the same time Sainsbury have many competitors who offer the same product (Appendix 5) which shows that the competition among the retail industry is quite high, but Sainsbury with its core competencies and diversified portfolio has been able to gain a diverse customer base. Analysis and evaluation of supporting resources and capabilities The company is trying hard to keep up its competency level by delivering efficient service and timely service. Sainsbury online serves almost about 30,000 order per week and cover 75% of the UK which ads on to its advantage (Breitenbuch, 2004, p.22). With advancement in technology and change in mindset, customers prefer online services rather than the brick and mortar. Thus Sainsbury competency lies with its online shopping service. The capital of Sainsbury resulted in decreases in 2011 (854) as compared to 2010 (1006). But Sainsbury has invested in its R&D and other portfolios which have sown positive outgrow in the current fiscal year. But a glance at the resources and capabilities have proved that Sainsbury can well compete in the competitive retail market. In addition the stakeholders have a high interest in the strategies that are undertaken by Sainsbury and acts as a resource for the company. Due to its good corporate image the expectation is quite high in terms of performance and profits. Thus it is expected that Sainsbury strategy will be increase the profit ratio and at the same time offer its customers with a diversified portfolio. The recent years have witnessed a strong growth rate; in 2011 total sales grew by 5.7% and continued to grow in the current year also (IGD, 2012). Identification justification of top challenges Sainsbury main goal was to become the number one retailers for its customer’s and in the process of achieving its goal Sainsbury has adopted both the cost leadership and the differentiation strategy. The risk involved with this strategy is that since it has undergone both the generic strategies it is sometimes referred to as stuck in the middle and often not accepted by the market environment (Moon, 2010, p.9). Also with the adoption of its differentiation strategy, it has diversified its product portfolio and one such segment Sainsbury has entered is the drug and chemist sector. In following its differentiation strategy the risk associated with Sainsbury is estimated to be at its peak because the drug sector has already established players and it will be tough for Sainsbury to survive. The food sector is already marked by huge competition from other major retail supermarkets and non food items also face a tough competition. The status of the consumers in UK is one of the short term risks for Sainsbury, if the consumers slow down the supermarket will probably lose its market share (Morning Star, 2010). However it can be said that with the adoption of its current strategy, Sainsbury has been able to increase its profit ratio as compared to Tesco and other supermarkets. Value chain Sainsbury had made an investment of about multimillion pounds in its supply chain technology which has helped the company to reduce the amount of un-bought food by 15% during hard times. This technology was created by Sainsbury and helps to reduce wastage of food which would then help in the reduction of emission from CO2 to about 1400 tonnes. Thus it can be said that the company can react to changes in the buying pattern (Brittain, 2010). (See appendix 9) Value chain has been identified and upgraded in order to widen the system of suppliers, network and the buyers i.e. through the value system, and the importance of each individual and the discrete activities which are performed by the firm to achieve competitive advantage. Sainsbury has developed different supply chain channels to manage the complexity faced due to different store formats such as country town, Sainsbury local. Sainsbury believes in continues improvement and aims to achieve it in many different ways. Sainsbury recognise the importance of its people who plays a major role in delivering excellent business. The logistic staffs of Sainsbury tend to work in flexible and well maintained environment. One of the collaboration of Sainsbury is to focus on the demands of the consumers and maintain a healthy relationship with the suppliers and other partners. Above all Sainsbury is committed in reducing the impact of its operation towards the environment (J. Sainsbury Plc-b, 2002). Suitability Does the strategy adopted by Sainsbury address the external environment? It is important for organisation to understand that the strategy needs to address the external environment which plays a vital role in the development of the company. This will help Sainsbury to achieve its vision of being the first choice of its customers. Is the strategy achievable and visible at a given condition? Apart from the political factors, the economical conditions within the environment should be stable and help in the achievement of the vision of the organisation. The strategy adopted by Sainsbury is achievable at any given economic condition. As mentioned in the SWOT analysis (Appendix 3) one of the major threat lies with Sainsbury is the market of UK which has matured over the years. Does the strategy build upon the strategic capabilities of the organisation? Sainsbury core capabilities (Appendix 4) lie with their online shopping service which is often regarded as better than its competitors and at the same time hard to imitate. Other capabilities of Sainsbury include its logistic, loyalty programs and its own labelled products. But the disadvantage lies that its competencies are same as its competitors and are very easy to imitate. Does the Strategy adopted by Sainsbury create a competitive advantage? Sainsbury has adopted both the low cost strategy and also the differentiation strategy. The retail food section of Sainsbury offers food at a cheaper rate and also its product line offers a variety of services and products thus following the differentiation strategy (See Appendix 3). Acceptability What are the expected outcome of the strategy and are the strategy consistent with the expectation of stakeholders? Sainsbury main stakeholders are the employees, customers, community, the suppliers (CBI, 2004, p.1) and other who directly affects the strategy and the functioning of the organisation (See Appendix 7). The effect of strategy affecting the stakeholders is shown through stakeholders mapping which aims to identify the power and expectation (Verweire, 2004, p.34). Thus with respect to the stakeholders, Sainsbury value each of the stakeholders with high priority and that’s one of the reason why in the Sainsbury stakeholders mapping, no stakeholders are assigned in the category ‘A’ which is minimal effort. Thus Sainsbury value each of its stakeholders equally and the strategy adopted by Sainsbury affect directly its stakeholders ranging from its employees to suppliers to the environment. Does the strategy adopted by Sainsbury is attractive in terms of financial return and timescale required for its online orders? Sainsbury main rival is Tesco in terms of market share. The market share of Tesco has slipped from 30.7pc to 30.5pc. However the supermarket, Tesco was not being able to keep a track with the level of inflation at the current rate of 6.2 c in the grocery industry. In comparison to Sainsbury, sales growth was recorded 4.2 pc (Wallop, 2011). The financial report of Sainsbury has also shown a positive growth rate in its operating profit which amounted to ?851million in 2011 as compared to ?710 million in 2010. The gross profit recorded for the year end 2011 was also quite impressive as compared to the previous financial years (See Appendix 8). What are the risks involved in following the strategy? One of the risks involved associated with the hybrid strategy is that the company is trying to diversify into various sectors which might not result in profitability in the long run, may result in failure. This is because Sainsbury is following two generic strategies cost leadership and differentiation strategy and it might result in a drawback in the long run. Feasibility Has Sainsbury got the potential resources and capabilities? Sainsbury core competencies and resources (See Appendix 4) have enabled Sainsbury to achieve the third position in UK retail market and strengthen its value chain through investing in new technology (Appendix 9). Conclusion Sainsbury strategy has helped it to become among the top retailers in food and non food items in UK and has been able to achieve a decent market share along with gross profit which resulted in a higher rate than its competitors Tesco. But with respect to international strategy, Sainsbury would face challenge from the intense competition from its competitors as they are globally situated and are assumed to be bigger brand than Sainsbury and has captured most of the market share outside UK. And secondly, due to economic slowdown, consumers have started to cut cost and prefer the small retail shops rather than the giant retail outlets. This would hamper the working of Sainsbury in the process of international expansion. Therefore it can be said that Sainsbury should expand only when the conditions are in favour of the company. Reference Breitenbuch, M. V., 2004. Online Food Shopping: Consumer Perception and Retailers Market Approach, Contrasting the Markets UK and Germany. GRIN Verlag. Brittain, N., 2010. Sainsbury's tries something new with supply chain technology. [Online]. Available at: < http://www.computing.co.uk/ctg/news/1834835/sainsburys-tries-supply-chain-technology> [Accessed 23 April, 2012]. CBI, 2004. Sainsbury’s. [Pdf]. Available at: < http://www.article13.com/CBI/CBI%20CSR%20Case%20Study%20Sainsburys%20August2004.pdf> [Accessed 19 April, 2012]. Cravens, D. W., 2009. Strategic Marketing 8E. New York: Tata McGraw-Hill Education. Data Monitor, 2002. Sainsbury's: putting the Boots in. [Online]. Available at: < http://www.datamonitor.com/store/News/sainsburys_putting_the_boots_in?productid=E22D4126-72D1-4FF4-B2B3-1CAB1AF4E9A7> [Accessed 19 April, 2012]. Grant, M., 2010. Contemporary Strategy Analysis: Text Only. John Wiley and Sons. IGD, 2012. IGD’s 2012 Sainsbury’s Trade Briefing. [Online]. Available at: < http://www.igd.com/index.asp?id=1&fid=2&sid=1&cid=2083> [Accessed 19 April, 2012]. J Sainsbury Plc, 2012. About US. [Online]. Available at: [Accessed 18 April, 2012]. J Sainsbury Plc-a, 2011. Annual report and Financial Statement. [Pdf]. Available at: < http://www.j-sainsbury.co.uk/media/171813/ar2011_report.pdf> [Accessed 19 April, 2012]. J Sainsbury Plc-b, 2002. Sainsbury’s. [Online]. Available at:< http://www2.sainsburys.co.uk/sid/info_sc_osc.htm > [Accessed 26 April, 2012]. Johnson, G., 2008. Exploring Corporate Strategy: Text & Cases, 7/E. South Asia: Pearson Education India. Just Food, 2011. UK: Morrisons, Sainsbury’s gain market share. [Online]. Available at: [Accessed 20 April, 2012]. Mantle, P., 2012. Case Study: J Sainsbury Ltd – January 2012. McGrath, T., 2012. Sainsbury's: Second largest UK online food seller. [Online]. Available at: < http://www.eway.co.uk/ecommerce-news/post/2012/03/14/Sainsburys-Second-largest-UK-online-food-seller143.aspx> [Accessed 19 April, 2012]. Mintel, 2011. Food Retailing – UK [Online]. Available at: [Accessed 18 April, 2012]. Moon, H. C., 2010. Global Business Strategy: Asian Perspective. Singapore: World Scientific. Morning Star, 2010. Sainsbury Lacks Competitive Edge. [Online]. Available at: < http://www.morningstar.co.uk/uk/660/articles/94693/Sainsbury-Lacks-Competitive-Edge.aspx> [Accessed 19 April, 2012]. Pisanello, D., No Date. SHORTCOMINGS IN ENFORCING EU FOOD LAW. WHAT DOES EU FOOD LAW STAND FOR? [Pdf]. Available at: < http://regulation.upf.edu/dublin-10-papers/2F4.pdf> [Accessed 20 April, 2012]. Retail Detail, 2012. British food industry pledges to cut calories. [Online]. Available at: [Accessed 18 April, 2012]. Verweire, K., 2004. Integrated Performance Management: A Guide to Strategy Implementation. SAGE. Wallop, H., Tesco loses market share. [Online]. Available at: < http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8937822/Tesco-loses-market-share.html> [Accessed 19 April, 2012]. Bibliography Porter, M. E., 1998. Competitive Advantage: Creating and Sustaining Superior Performance: with a New Introduction. USA: Simon and Schuster. Appendix 1: Bowman’s Strategy Clock Figure 1: Bowman’s Strategy Clock (Source: Johnson, 2008, p.243) Sainsbury Strategy clock Sainsbury Appendix 2: PEST Analysis Political Sainsbury adopted the international strategy and thus the political factors along with globalisation have affected the expansion. EU has been stringent in matters of food in order to protect the customers (Pisanello, n.d) and thus the food retailers have to comply with various standards which have affected the profit with is predicted to hamper the future growth. Economical Affects the buying decision of the customers as with recession hitting the country the residents are likely to cut cost and save for future needs. The people might prefer the next door retail outlet to shop for and this would indirectly affect Sainsbury. The economic recession has affected the people residing in UK and this has ultimately resulted in affecting the retail food sector. People will not stop eating due to poor economic situation like global crises or res\cession but they would obviously cut cost which Retail industry prone to negative economic condition and can affect the future growth Social Social trends have been changing with the development in the countries High consumer debt level with negative savings rate. Technological Adoption of online retailing Supply chain management Adoption of electronic Point of Sale (PoS) Appendix 3: SWOT Analysis Strength Sainsbury is the third largest retailer in UK with 16% of the market share (Just Food, 2011). Sainsbury has a diversified range of products it has a good corporate image Online shopping Weakness J Sainsbury Plc is exposed to the UK business cycle to a great extend. Opportunity Growth opportunity in the online shopping market Demand of good quality of food and healthy food Growth opportunity in the emerging countries. developing presence in the chemist and drugstore category Threat Intense competition from Tesco, Asda and Morrison Mature UK Market Appendix 4: Core capabilities and resources Figure 2: Resources and competencies of J Sainsbury PLC (Source: Mantle, 2012) Appendix 5: Porters Five Forces Figure 3: Porters five force of Sainsbury Appendix 6: TOWS Matrix Strength Sainsbury is the third largest retailer in UK with 16% of the market share Sainsbury has a diversified range of products it has a good corporate image Online shopping Weakness J Sainsbury Plc is exposed to the UK business cycle to a great extend. Opportunities Growth opportunity in the online shopping market Demand of good quality of food and healthy food Growth opportunity in the emerging countries developing a presence in the chemist and drugstore category Sainsbury being the third largest retailer could make use of its corporate image in the emerging countries and with the online shopping market it can further strengthen its growth opportunities. Sainsbury can overcome its weakness by utilizing its opportunity and create demand for its food and non food items. Threat Intense competition from Tesco, Asda and Morrison Mature UK Market With its diversified portfolio it can stay ahead of its competitors and along with its corporate image can easily tap the mature UK market. Sainsbury needs to tackle its problem as it’s too exposed to the UK business cycle and as a result the rivalry is quite high. Appendix 7: Stakeholders Mapping Figure 4: Stakeholders mapping A Minimal Effort B Keep Informed Shareholders C Keep Satisfied Environment, Community D Key players Customers, Suppliers, employees Keep informed: the shareholders of the organisation should be kept informed about the happenings and decision taken by Sainsbury. It is the duty of the company to make the shareholders know about every step that the company takes. Keep Satisfied: The community and the environment falls under the category of “C” where the company should satisfy these stakeholders. The community is important as it is a place that Sainsbury operates. The environment is also important as sustainability issue raises with the environment thus it becomes incredibly necessary to keep satisfied these two stakeholders. Key Players: The key players consist of the customers, suppliers and the employees. It is through these stakeholders that Sainsbury is able to operate its business. The employees form an integral part of the organisation. The strategies adopted by Sainsbury will directly affect thee stakeholders. Appendix 8: Financial Statement of Sainsbury Table 1: Financial performance (Source: J Sainsbury Plc, 2011) Table 2: Tesco Financial statement (Source: Tesco, 2011) Appendix 9: Value Chain Read More