Food Retail Industry in the UK - Term Paper Example

Introduction Being the third largest supermarket in Britain it was started in on November 24th 1869. It was formed with Mary Ann and her Husband John Sainsbury. The two started a store at a place called Holborn in the British Capital (London).it started humbly as a fresh food retailer and afterwards started packaged groceries. It was registered as a private company in 1922.the name it adopted J. Sainsbury Limited. In 1922 when James Sainsbury died, they had one hundred eight stores. James eldest son took control of the shop and he veered the store towards product refinement, not only did he offered but he also maintained the leadership search as the design of the store, cleanliness and consumer convince. In 1972 the company was placed on the London stock exchange. The family members maintained eighty five percent of the shares. In 1979 they went into partnership with GB Inn BM a retail company from Belgium. And started a chain store using their Home base. Soon after buying Texas Home care in 1995 the size of home base became tripled. In 2000 Home base was sold by Sainsbury. Currently it is planning to relocate to King cross the support centre store from Holborn. This year it has also added to itself Curley's store from the Irish. It is currently operating eight hundred and twenty three supermarkets and stores. Out of these five hundred and four are supermarkets. While three hundred and nineteen are convenience stores. It is also offering shopping on internet; they have also started a bank in conjunction with a Scottish bank. Its supply chain is also operating in 10 centres of region distribution. Pestel analysis of the external Environment of J. Sainsbury (food retail Industry in UK) The pestel model can be used to analyze the macro environment factors that are likely to affect the business for example the changes in the in taxes imposed, trade laws, change in government policy, and change in population and many more others. The model takes into consideration the following factors; Political, Economic, Social, Technological, environmental and the legal factors. Political Factors: The Government announced last month that's its intending to decrease the taxes it is imposing to the corporation companies by two percent (from the current thirty percent to twenty eight percent). This will have a big impact to the corporation Sainsbury included they will be able to save a lot of money. The money they will have saved will be allocated to an alternative use. (Department of Treasury 2008). There were allegations in UK about the retailers who were fixing prices. The government has established commission of enquiry. The investigation is mainly done to the biggest four retail industries who have been accused of the malpractices J. Sainsbury included. This is going to affect Sainsbury despite the fact that they have already established themselves with their customer. As many of their customers will have a negative perception about them, they will think that they have all along been cheated. (Doherty 2008 page 15) The good infrastructure which the government has provided like good roads has also impacted positively on them, as this has made their goods to move with ease. In 1997 the government (Labour party) established the Monetary Policy Committee. The body was given the mandate to set the rates of interest. Despite this being political it had an impact on the economy of the country which in turn affected the profits earned by Sainsbury in their banking business. Economic Factors: The food problem that the world is currently undergoing has made the prices of the food to increase. This has greatly increased the cost of expenditure which Sainsbury is using to buy food. Their profit margin is expected to reduce to some small percentage. The prices of most commodities have raised in the supermarket a fact that is attributed to the current food shortages. All these are expected to have an impact on the profit margin that is the profit margin is expected to reduce. (Sir Henry 2007 page 23) The current economic turmoil being faced in UK has made the Government to take some political measure which is not going on well the Sainsbury. The prices of their share at the London stock exchange have fallen down due to the inflation being faced not only in UK but in the whole world. (Sir Henry 2007 page 23) Sainsbury has given a lot of incentives to their consumers due to the competition they are facing. The competition in the market has been so difficult to the extent that they have also to do a lot of advisement to the public. This is extra cost of advertisement and of giving incentives has actually reduced their profit margin to some significant level. According to Sainsbury annual report of 2007 the retail company spent over twenty percent of their earning into giving incentives and in paying for advisements. (Sainsbury annul Report 2007 issue page 24) Social Factors The changes in the trends that the society has seen in recent years are affecting Sainsbury. For example according to the British department of the population is greatly contained of old people as in the percentage of the old people has increased this has impacted negatively on Sainsbury because they are usually paying pension scheme. The cost of paying for the scheme as greatly increased, as their retired staffs are living more years after retiring. The health department is currently engaging on healthy eating campaign, this is because of the increasing rate of obesity in UK. Currently a lot of customers are now focused on healthy diet. Opportunity has now arisen for Sainsbury to keep in store more food which is healthy and at a lower price Technological Factors More people now have access to internet in UK. This has greatly increased the number of people shopping using internet in Sainsbury. According to the Economist magazine 2007 about eight percent of people are currently shopping in the internet. Hence Sainsbury can take the advantage of people shopping through the internet to increase their sales. (Economist 2007 page 21) The technology growth has also increase the sales in Sainsbury because they are applying new technologies in serving their consumers. (Sainsbury report 2007 page 15). Environmental Factors A change in climatic conditions that has been caused by global warming has led to the current global food crisis. This has greatly affected Sainsbury because it has made them to increase the prices of their product. Given that they are buying the product at a higher price. Ethically treatment of animals and organic food sale has impacted on Sainsbury to a significant level. The increasing facts in these issues imply that Sainsbury will have to serve both consumers on the basis of the price. This will be critical to Sainsbury because it calls for the balancing their environmental stand at the same time not loosing consumers because of the price increases which likely to occur. Legal factors The health department has counties to implement the stringent drinks and food laws. Sainsbury won't have any alternative but to implement them fully. Polices of labelling and doing more packaging will make Sainsbury to have extra cost. This is likely to have a negative impact on Sainsbury because it is expected to reduce their profit margins. Their banking service has also suffered from more legal scrutiny. Sainsbury responsibilities have increased because they have to comply with the legal requirements of operating a bank. (Williamson 2008 page 23) Swot analysis of J. Sainsbury It is analysis involving a frame work used for coming up with a strategic solution after analyzing a situation. It can widely be applied to several sectors ranging from corporate, up to the small business firm. SWOT normally is used to refer to: S stands for the Strength, W stands for Weakness, O stands for Opportunity, while T stands for the Threats. It is normally best used when there is a very small amount of time to sort out a problem. The Strength analysis the profit earned by Sainsbury has continued to shoot up. According to Rigbet 2008 Sainsbury has registered a quarterly growth of thirteen percent; there is an increase of seven percent compared to the previous financial year. In the previous financial year it had a turnover of seven percent. And the profit after tax was four hundred and fifty percent. (Sainsbury Report 2007 issue page 20). Another factor is the staff, Sainsbury has employed staffs of high standards that not only have the experience but are also professional. It Sub let its IT department to an independent firm, this has contributed significantly to the improvement of its network services particular the quality of internet shopping Chief executive of Sainsbury has bagged several awards. Its venturing into the banking sector is also strength, in that currently it is not relying solely on the food industry. In case the food industry is not at peak they will always have funds in terms of profit from its banking services. Weakness Analysis The bid from the private firm in Qatar, can make Sainsbury customers to run away from their and to give their loyalty to another UK firm. This because some citizens fear that this will end up killing British companies. (Financial times 2008 page 11) Sainsbury is only a domestic food chain that is it's only present in UK, the company need to invest more outside. They should also invest in South America or America. By investing domestically in case o an economic turmoil in UK they will suffer greatly because they have invested only in UK. Opportunity Analysis The company has a good room (opportunity) growth. It has gone ahead and set for itself a high goal of forty million British pounds. Threat Analysis EU member countries have continued to advocate for an environmental friendly investment. These have made Sainsbury to invest on environment even though they are yet to see the benefits of investing. Sainsbury faces a problem of trying to maintain equality. For example using bio fuel is the solution to the current carbon emission, the adoption of bio fuel great negative impact on Sainsbury. The use of bio fuel as increased the price of the corn in UK this has greatly affected the consumers of Sainsbury because the price increase is passed to them (independent 2008) Porter's model of analysis of J. Sainsbury It is a model that was developed by Porter which was to be used for the analysis and strategizing on the business growth. The models are usually developed by factoring out the five forces of competition. The forces are the competitor's entry (easiness for competition from a new business); substitutes threat (easiness for product replacement at a cheaper price), buyers bargaining power, and the level of competition Substitute threat analysis Given that Sainsbury is operating in food industry, it's hard to substitute food as long as human beings are still living. Sainsbury has continue to come up with some new innovations like repackaging of their product and as also ventured in another form of business all these are geared towards making shopping interesting. The current increase in price of their product is not a threat as such because al the company has increased their price a fact that is blamed on the current global food crisis. The power of the buyer analysis The consumers have a lot of power in the food industry, due to the presence of many industries. These make them to have a variety of shops to choose from. The power of the consumers are going to increase greatly, this is mainly due to the fact that the economy is headed for a recess (Doherty 2008 financial times page 14) The Power of the suppliers' analysis The power of the suppliers who are small will be insignificant due to the fact whatever quantity of their product they are selling heavily relies on the Sainsbury and other big supermarket This is so hard to categories. Some scholar refers to it as a relationship which is dependent mutually. Given that the suppliers are big companies with a lot of credentials for example Coca cola, some consumer do like paying their loyalties to these companies so if their goods are not stocked some consumers will resort to another supermarket which stocks their product. This will influence their sales (Wiggins 2008 page 13). Barriers for entry analysis There are a lot of barriers in this industry. These are, sector require a lot of capital because of the sophistication in it. Sainsbury and other big supermarket have already established itself hence there is a little room for new business to start thriving. They have also developed a lot of confidence and favours amongst their consumer. Sainsbury has a good knowledge of the UK market; this will be hard for the other new firms to imitate or to copy. The level of competition Being the forth largest supermarket Sainsbury is facing stiff competition from the other three supermarkets and from the other smaller ones. More companies are also venturing into the industry despite the fact that is already crowded. This is made the competition in the market to be so intense. (Rigby 2007 page 21) .The competitive advantages of J. Sainsbury Sainsbury has many advantages some include: The UK government declaration that its going to reduce the percentage of tax levied on cooperate by two percent will be advantageous to Sainsbury, it is likely to increase their profit margin. The company in 2000 leased out the IT department this improved its IT services. The venturing into banking sector has also put Sainsbury into advantage because the firm do not solely relies on the food industries. So when the food industry is not going on well it can still receive funds from the banking sector. The recent introduction over one thousand three hundred lines of brands. Limitations of the tools used in the analysis Limitations of Pestel analysis One limitation faced by pestel is that it maybe hard to accurately predict the trends of the future this may lead to dealing with uncertainty which are of levels which are high. Limitations of Swot analysis Although it is useful in the analysis of the business its still have several limitation: SWOT analysis oversimplifies the real situation by trying to divide the environmental factors of the company into classes that they can not go into. The division of some factors is so arbitrary for example a change of technology can be viewed as an opportunity or as a threat. Some scholars have also rejected SWOT analysis by claiming that the analysis is too broad, making it to be of no help in case you want to make a marketing decision. Weakness and strength analysis has been found to be unreliable because it is not only guarded with hope and aspirations but it is also biased. (Mintberg 1990 page 32). The assessment is also unreliable because what one might see as posing threat another person may view it as an opportunity for him to excel (Westbrook 2005 page 12). SWOT analysis is so subjective; several scholars while analyzing the same thing can come up with different conclusion on the same subject. This calls for consensus between the analyzers before making or giving a conclusion. Limitation of Porter's model analysis Porter's model has been seen to be so ineffective so I extend a fact that is being contributed by its inability to come up clearly with what the five factors are. Conclusion Sainsbury supermarket can still improve their turn over from the current one by more than ten percent. The company policies of adopting measurers that saves climatic changes is also a good twist of event, this is likely to be a solution to the food crisis that is currently being faced. A fact attributed to the climatic changes. Reference: Sir Henry .H... (2007), critical analysis of Economics and business, published by Oxford page 23 Doherty, P, (2008), Sainsbury supermarket, financial times, March 21st page 15 Rodney. S. (2008), Food industries in Britain, page 23 The Economist (2007), Analysis of Business Environment, Oxford publishers. Sainsbury financial analysis report (2007) page 4-34, Sainsbury press division Sainsbury financial report (2006) page 12 - 23 Sainsbury press division Sainsbury financial report (2005) page 14 Sainsbury press division Mike. D. (2008), - What the Future hold for Sainsbury Supermarket, Mintberg .K. (1990):- What I consider the Limitations of SWOT analysis, Peterson .W. (2008), the Effects of Economic turmoil in UK Rigbet. (2007). Cut Carbon emission by using less Power, Financial Times, December 15th. Westbrook (2008), what can be done to improve the food industry in UK financial times Page 12 Read More