Business Strategy and Planning of Sainsburys Plc and Tesco - Assignment Example

SAINSBURY Business Strategy and Planning Introduction The three questions in the work Assignment which are beinganswered in this paper relate to Sainsbury's plc, and incidentally to Tesco too, two of the top-ranking 'super-market stores' of UK. As background information, I think it is advisable to clarify, at least in my own mind, the birth, growth and the current position of these two institutions. I attempt to do this in a few paragraphs below. About SAINSBURY'S Sainsbury's was founded in 1869 by the Sainsbury couple, John James and Mary Ann, at 173 Drury Lane, London. By 1882 Sainsbury's had four shops, by 1900, 48; and by 1939, 244. In 1950, Sainsbury's introduced the 'American' style of food retailing and during the following three decades all Sainsbury's stores were converted into modern supermarkets. During the 1960s, distribution was decentralised. In 1973 the company became a plc. The oil crisis of the early 1970s forced it to improve efficiency. During the 1980s and early 1990s expansion into the north-east of England, Scotland, Wales and Northern Ireland made it 'national' in the scale of its operations. By the end of 1994 (Sainsbury's 125th year), the company had 355 stores in UK and an off-shore store in Calais. With the start of the new millennium Sainsbury's sold Homebase and Shaws Supermarkets to focus on the core UK business, comprising Sainsbury's Supermarkets, Sainsbury's Local, Sainsbury's online and Sainsbury's Bank. The acquisition of convenience store chains Bells Stores, Jacksons, JB Beaumont and SL Shaw increased its presence in the UK convenience sector. Today Sainsbury's serves 16 million customers each week in 455 supermarkets and 301 convenience stores across UK. The company employs 153,000 workers to deliver 'Great Food at Fair Prices'. Sainsbury's sells 6bn of British food every year, and in March 2006, reported a 5.3% rise in sales, its fifth quarter growth in a row. Sainsbury's was for decades the premier supermarket in the UK; it lost this position however in 1995 to Tesco, further slipping to No.3 in 2003 behind Walmart-owned ASDA. According to the latest TNS rankings released in June 2006, Sainsbury's remains the UK's third largest supermarket on 16.0% market share, while ASDA remains second largest at 16.4% and Tesco has increased its share to 31.1% (The information in the above paragraphs were collected, paraphrased, collated and abridged from the four web sites of: (1) http://www.sainsburys.co.uk/home/htm, (2) www.j-sainsbury.co.uk/ (3) http://en.wikipedia.org/wiki/Sainsbury and (4) http://www.fairinvestment.co/uk/default.aspx, all retrieved August 8, 2006). About TESCO. Tesco is the largest British supermarket chain and has significant operations in other countries. Originally specializing in food they have moved into areas such as clothes, consumer electronics and cars. By 2003 it had over 2000 stores, including a large number of convenience stores in the UK. Outside of the United Kingdom they also operate in the Republic of Ireland, Hungary, Poland, Czech Republic, Slovakia, Thailand, South Korea, Taiwan, and Malaysia. Tesco was founded by Jack Cohen, who was selling groceries in the markets of the London East End from 1919. The first Tesco store was opened in 1929 in Edgware, London. The firm was floated on the stock exchange in 1947. The first Tesco self-service store opened in 1948 in St Albans and was still trading as of 2002. The first Tesco supermarket was opened in 1956 in Maldon, Essex. Its first "superstore" was opened in 1968 in Crawley, West Sussex. It began selling petrol in 1974 and its annual turnover reached 1000 million pounds in 1979. It introduced a loyalty card in 1995 and later an Internet shopping service. During the 1990s it expanded into Eastern Europe, Ireland and East Asia. In July 2001 it became involved in internet grocery retailing in the USA when it obtained a 35% stake in GroceryWorks. Tesco has expanded also by taking over other chains, including: Victor Value, England, 1968 (sold again in 1986), William Low, Scotland, 1994 Quinnsworth including its Crazy Prices stores, Republic of Ireland, 1997, 13 HIT hypermarkets in Poland, 2002, T & S Stores, owner of the UK convenience store chains One Stop and Day & Nite, 2002, C Two-Network in Japan, 2003, a majority stake in Turkish supermarket chain Kipa in 2003., and Lotus in Thailand. (The above paragraphs about Tesco have been abridged from materials retrieved on August 8, 2006 from the websites of (1) http://www.tescocorporate.com/ (2) http://www.tescoifinance.com/personal/finance/home.isp, (3) http://tesco.uk.s5.com/ (4)http://tescocorp.com/bins/index.asp, (5)http://en.wikipedia/org/wiki/Tesco, and (6) http://www.tesco.net). A. Lessons from Tesco for Salisbury Thus, it will be seen that Tesco (1929) came into the field of grocery-supply business 60 years after Sainsbury's (1869) had been operating in that area, and yet by 1995 Tesco has overtaken Sainsbury's as the number one super-market in UK, and by early 2005 as the largest retailer in the United Kingdom, with a 29.0% share of the grocery market according to retail analysts TNS Superpanel, compared to the 16.8% share of Wal-Mart and 15.6% share of third-placed Sainsbury's. How has this happened, both these companies have more or less the same category of clientele, both have been supplying more or less the same kinds of products and both have been operating largely within the same kind of business macro- environment. I examine Tesco's strategy to find any lessons that Sainsbury's can copy. A main reason for Sainsbury's woes has arisen from the top heavy administration, which, even when the business was slipping down from its accustomed position was clamouring for more than their "pound of flesh". In June 2004 Peter Davis was forced to quit in the face of an impending shareholder revolt over his salary and bonuses. Investors were angered by a bonus share award of over 2m despite poor company performance. Tosco's strategy (1) Tesco has transformed its strategy and image over the last two decades. (2) "Non-food business" - Many U K supermarket chains have attempted to diversify into other areas, but Tesco has been exceptionally successful in this. By late 2004 it was a major competitive threat not only to Sainsbury, but also to traditional high street chains in many sectors, from clothing to consumer electronics to health and beauty to media products. It also has done quite well in non-food sales in Ireland. CDs are one of the best examples, selling them for 14.95 euros compared with HMV Ireland or Golden Discs selling the same for 20 euros. (3) Store numbers: In the UK Tesco has more outlets - 586 compared with Sainsbury's 400. Abroad, Tesco has 108 stores - 16 in the Far East, including Thailand and South Korea, and the rest in Europe, including Hungary, Poland and the Czech Republic. It is also considering expansion into Taiwan and Malaysia. . (4) High street presence: Soon after the sudden mushrooming of out-of-town superstores, Tesco realised the value of keeping a high street presence. Today it has 41 Metro stores in prime spots in the centre of towns and cities. For years, Sainsbury ignored the trend back towards convenience, but last year caved in and decided to set up "Local" shops. There are still only two. (5) Then there was the 'Clubcard', Tesco's loyalty card that earns customers reward points every time they shop. Sainsbury famously dismissed it as "electronic version of Greenshield Stamps". But, Sainsbury was forced to make an embarrassing U-turn and introduce its own loyalty card when the Clubcard took off. (6) Next, Tesco's range of own-label economy lines gave shoppers the chance to save money on basics. (7) The group also pushes non-food sales, including clothes and home entertainment. No items are out of bounds, it seems. At one stage, it offered some of the cheapest PCs - with the added incentive of earning Clubcard points on a major purchase. Most recently, it has been selling mopeds. (8) Then, Tesco took on designer brands such as Levi's and Nike, offering their products at cut prices. Even England and Scotland football shirts went cheap. (9) And Tesco was first to react to customers' frustration at long check-out queues, initiating a "one-in-front" policy - if there was more than one customer in front, they would open another check-out. The policy is still in place. Tesco also removed sweets from check-outs, pleasing parents bullied by their sweet-tooth children. So, like 'little drops of water making the ocean', all these little strategic marketing moves gave shoppers the impression that Tesco had their interests at heart. Diversifying: Tesco was the first supermarket to offer personal pension schemes, aimed at people unfamiliar with buying any financial products. New technology: Tesco was the first supermarket to become an Internet Service Provider and the first to sell PCs with Intel's Pentium III processor. 24-hour shopping: Tesco has more than 100 stores open round the clock. Sainsbury has only 30. Prices: Tesco has repeatedly been scoring more points in the 'price war games'. The cuts have cost it more than 1m in total. Earlier this year, it announced it was reducing the price of more than 300 goods. Advertising: Sainsbury's ditched probably the best-known advertising slogan in retailing: "Good food costs less at Sainsbury's". The company then tried out a variety of slogans, ranging from "Everyone's favourite ingredient" to "Fresh food, fresh ideas" and "Value to shout about". But the television campaign for the latest slogan - featuring John Cleese - flopped badly as customers thought it was 'patronising'. The campaign was voted most irritating. All these have contributed to enable Tesco to out-smart Sainsbury's in the art of retailing groceries and other consumer products in UK. B. Macroenvironment that Sainsbury must operate in: Business Macroenvironment is the big picture of the 'institutional influences' that always hover all-around a business in all its activities and decisions and which have to be taken into account in whatever a company does. Specifically, these 'influences' include those emanating from: Demographic conditions; Economic or business conditions; Technological conditions; Political and legal conditions; and Social and cultural conditions. In demographic condition, the company may analyse, for instance, the age group of the customers whom it services. An instance of the economic impact may be that of the interest rate changes on the propensity to invest; or if you serve an international market too, the impact of multilateral trade agreements on your margins from the foreign market. Likewise the company has to be always vigilant about the impact of technological advances on its cost, and its margins. Assessment of the kind and degree of changes that the may have to account for may be determined sometime times by the changes in the law and politics of the country, to which the company has to comply with and conform. All of us are well aware how fashion and taste, which are some kind of expressions of culture changes, affect our life and behaviour. Their impact on business is tremendous. Added to the influences from these sectors, there are also the many 'influences' that come from the market which determine the climate of the environment of business. Such influences relate mostly to the market or markets that the company serves and include a situation analysis of the size, growth, and trends of the overall market and any relevant segments of the total market or category; estimating the trend of the market, including key industry developments, introduction of new technology or new products, and increased marketing spending by key competitors; and on the basis of these considerations, developing a suitable marketing strategy for the company. In the checklist of the marketing strategy of the company, I would like to find items to: define what the company is for; identify the products or services that the company provides; identify the target buyers and end users; establish the marketing category (e.g., fast food purveyor, high-end audio equipment sales, and so on) determine whether the company will be a market category leader, follower, challenger, or niche player; describe the unique characteristics of the products or services that distinguish them from the competition; define whether the pricing will be above, below, or at parity with the competitors and establish whether the company will lead, follow, or ignore changes in competitors' pricing ; identify the distribution channels through which the products or services will be made available to the target market or end users; and describe how advertising and promotions will convey the unique characteristics of the products or services. All that has been said above constitute what I believe to be important aspects of the macroenvironment in which Sainsbury's should operate. Without going into a detailed review of likely results, I feel confident that if the company, after analyzing the impact of all these influences on its sales, Sainsbury's may be able to regain its lost position as the leading super-market store in UK. C: The strategic options Sainsbury's has embarked upon. Sainsbury's began its rescue operations to reposition the company as the number one supermarket store in UK immediately after its Annual General Body Meeting in 2004. Justin King was appointed as CEO of Sainsbury's and soon he ordered a direct mail campaign to 1 million Sainsbury's customers as part of his 6 month business review asking them what they wanted from the company and where the company could improve. October 19, 2004 King unveiled the results of the business review and his plans to revive the company's fortunes. This was generally well received by both the stock market and the media. Immediate plans included laying off 750 headquarter staff and the recruitment of around 3,000 shop-floor staff to improve the quality of service and the firm's main problem, which was, stock availability. At the same meeting Lawrence Christensen, the newly appointed supply chain director and an expert in logistics, highlighted the reasons for availability issues and his plan to address them. Immediate supply chain improvements included the reactivation of two distribution centres. Another significant announcement was the halving of the dividend to increase funds available for price cuts and quality improvement. King has appointed successful executives from other companies to Sainsbury's: Lawrence Christensen was from Safeway, Mike Coupe joined from Asda and Tesco as trading director, Gwyn Burr joined as head of customer service, Ken McMeikan, from Tesco, joined as Retail Director. What Sainsbury's expected from this management group was to deliver a 'level of growth not seen within this group for over a decade'. Were there signs that this expectation would come true Let the Chairman (Philip Hampton) of Sainsbury's Board of Directors answer that question. At the 2005 general body meeting of the company, he said: "I believe that the plans presented to shareholders in October 2004 are the right plans to return Sainsbury's to long-term sustainable profitability. It is a simple yet compelling vision which will deliver a sales-led recovery; fix the basics, continue to focus on quality, invest in prices to address the competitive gap and focus relentlessly on customers. At the same time, we are working to reduce costs and improve cash flow. This is a three-year plan with the drive to achieve an extra 2.5 billion of sales by the end of the 2007/08 financial year and we expect tangible progress year by year". And Justin King, author of the recovery plan reported in June this year that: "If we exclude revenue from our petrol and banking businesses, we achieved total sales growth of 722 million. This is a solid start towards achieving an extra 2.5 billion in sales - the goal we announced in October 2004 in our Making Sainsbury's Great Again recovery plan." I think that the strategic options that Sainsbury's has embarked upon are result-oriented and I agree with them. And I feel confident that Sainsbury's are set in the right road to regaining its 'lost glory', because the company is "determined to work towards a successful financial recovery, while maintaining the ethical approach and commitment to high business standards that are a fundamental part of Sainsbury's heritage. There are arguably few business sectors where customer demands for value and quality have to be so constantly balanced with their concerns for health, the environment and the local community".(Philip Hampton).. (for the matter and the quotations included in C: Strategic Options, I have had recourse to the web site of Sainsbury's, viz., http://www.sainsburys.co.uk/ar06/chairmansstatement/ ) References: All references are from the following web sites: (1) http://www.sainsburys.co.uk/home/htm, (2) www.j-sainsbury.co.uk/ (3) http://en.wikipedia.org/wiki/Sainsbury (4) http://www.fairinvestment.co/uk/default.aspx (5) http://www.tescocorporate.com/ (6) http://www.tescoifinance.com/personal/finance/home.isp, (7) http://tesco.uk.s5.com/ (8)http://tescocorp.com/bins/index.asp, (9)http://en.wikipedia/org/wiki/Tesco, (10) http://www.tesco.net). (11)http://www.sainsburys.co.uk/ar06/chairmansstatement/ ) . . . . Read More