Business Strategies: Sainsbury's and Tesco - Case Study Example

Sainsburys and Tesco Introduction The current of affairs puts Sainsburys as UKs third-biggest supermarket chain, with a market share of about 16% .with 820 stores, profits of £488m, up 28% on last year’s level, this being reflective of 15 consecutive quarters of sales growth. Having realized that in the current environment, the strength and wide appeal of the Sainsburys brand has substantially improved for the period of the last four years; things seem to be rosy for the company. In the period, the fuel revenues rose by 4.3 percent during the summer before rising by 3.9 percent over the second quarter for the latter stages of the four year period. Sainsbury’s ranks as the most trusted ‘own-brand’ in the category of supermarkets. Roughly half of all customers sited ‘high’ faith in Sainsbury’s individual goods (47%) as opposed to17% for Asda, 15% for Morrison’s and 27% for Tesco. Research carried out with 1,000 consumers in August 2008 (Dan 2005). Sainsburys is a chain supermarket that offers a variety of goods and services. Located in the east of the United Kingdom, Sainsburys had been enjoying unrivalled success in the business before it threw away the lead to Tesco as it blundered on major marketing issues. In this paper, the two marketing strategies that Sainsburys has used have been put into perspective. After previewing the strategies, a comparison has been done against Tesco to see how they have been competing and where Sainsburys got it wrong. Sainsburys marketing strategies Following the advertising promotion that featured Jamie Oliver presenting family meals for a lesser amount of as low as £5, Sainsburys popularity with consumers rose than all other adverts the superstore had ever done. Inside the current financial crisis, Sainsburys was operating very successfully against its up market competitors. On a scale of hundred, 30% of shoppers’ shopping was now items on promotion, on comparison with about 20-22% a year earlier. Shoppers were rapidly becoming savvy and altering the ways they cooked and ate in reaction to the credit crunch. All the supermarkets have witnessed sales from organic and premium scales slow down or grind to a halt, even as lower-pricing and own-brand merchandise have become more popular. Sales of heat-and-eat set meals had been on the decline. Shoppers are moving away from ready made meals to trade fresh food in a bid to on save money. The exemption was sales of heat and eats Indian and Chinese meals, which are replacing takeaways. Diversification strategy As of 31st March 2009, the company was made up of 502 supermarkets and two hundred and ninety convenient stores. It also at the same time owned Salisbury’s bank jointly with the Lloyds banking group. Other properties were held jointly with the PLC, land securities group, and the British land company. During the same fiscal period, the Sainsbury’s group has opened thirteen new supermarkets including two stores, and at the same time completed the extension of twenty one supermarkets alongside thirteen refurbishments. On the same acquisition strategy, the company made a takeover of twenty four stores from cooperative group. The latest takeover comprised twenty two Somerfield branded stores and other two stores which were cooperative branded. From this, it is discernable that the Sainsbury’s group of companies has been seeking to bolster its business rank through the diversification strategy by initiating mergers, take-over, and extensions. By extending its facilities, the company stands a better chance in improving its market coverage and quality of production. An increased operationalisation of business activities translates into increased economies of scale. A new tag was also introduced imploring buyers to attempt something new. The strategy here was to present something new to customers. The reason being, after the realization was made that they have been doing a comprehensive analysis on the data they took from customer Nectar cards. On doing this, they realised that supermarket customers tend to purchase similar and a limited variety of items, day in, day out. For my part, that is what I would want from a supermarket, other than of course persons who aspire to add to the business’ market share by obviously wanting one to buy more (Edward 2000). As a result, their new plan involves in my view, putting of large sign notices in shops, and advertisements on television, imploring you not to be bored and to think about putting additional herbs and spices to your meals. Thus far, the marketing plan seems to have really worked well. But two things appear to be wrong with the scheme. First, the instructions which are all over the place in the shops are too distracting. The disruptions such adverts occasion in the minds of people can adversely interfere with their shopping. Just as in the case of driving a car, a supermarket shopping is a place that is regularly frequented and as a result such issues cannot be tolerated. Shoppers need their peace of mind (Dan 2005). Sainsbury’s tag that appears to persuade customers to try something new may work well in improving sales of its products. A good percentage of people would certainly be ready to attempt something new, though it should not appear to be indefinite. They would for example be happy to pay money for a quantity of nutmeg and seek grating it above their Bolognese. But only a very small number of them would twirl this into a rite and go on doing it every other time they create some spag bol. Once they have made attempts on all or a handful of suggestions they would be upset as a result of fatigue and fail to respond to future suggestions before them. This points that the programme works well though there are instances it may fail. (Hansen 2009). Comparison between Sainsburys and Tesco From the above focus on the two strategies by Sainsburys, the earlier one appears to have been far ahead of the second one that required customers to try something new during the day (Mentzer and Conrad 1991). Delivery charges, Sainsburys, are less to Tesco’s on average.3.5 against 5pounds. Even those that take longer days the charges appear to be higher for Tesco services. In point collection on the basis of purchases made, Sainsburys use their Nectar card system to reward their customers’ loyalty. On the other hand, Tesco Company uses the clubcard to appreciate their customers’ loyalty. Unlike in the case of Sainsburys where a pound spent earns one point, in Tesco a pound spent earns customer two points. The expenditure on petrol seems to earn the same number of points across the two companies, in both cases; a pound spent earns one point. Mr. Jamie Oliver is a true professional that serves Sainsburys as the chief chef, throughout his stay; he has ensured quality services to customers. His detractors however complain of his loud mouthed nature. The presence of this celebrity chef was a big attraction and served to improve the image of the company, an aspect that gave the company leverage over its rivals. In the early 1996, the city became against Sainsburys on the basis of its allowance of Tesco to get far in front in terms of customer service, price competitiveness, loyalty, among other things. Also on the accusation front, Sainsburys was found not to have sufficiently promoted itself. While running several similar services as Tesco, Sainsburys was condemned to have failed in taking the lead to colonise the market. To add insult to injury, Sainsburys appears to have remained unresponsive in a fast changing market. This reflects the debacle in the reward system of Sainsburys. On the other hand, Tesco was making much leeway in the market as Sainsburys slept on the job (Moschis 2005) this situation had negatively impacted on the proceeds of the Salisbury’s. Sainsbury’s appear to have gotten out of this problem and it has fast tracked its movement towards market dominance through the diversification strategy. Tesco’s key weapons in the war against Sainsbury’s to retain retailer supremacy were the clubcard loyalty plan. Next to this was the subsequent launch of the debit card. These two moves must have given Tesco the clear initiative to wrestle control from the Sainsburys outfit. Sainsburys was not only slow to respond to this but it also failed to sustain its late charge to contain Tesco due to technical problems. Sainsburys spearheaded a price operation, Autumn Value, relating special offers on a number of products. Tesco followed suit with its Unbeatable Value range, leading to a price war. The effect of these events would enhance short term volumes, relatively than assembling brand empathy, by mainly pressuring on individual retailers that previously have forever sold on value. Kwik Save was worst hit by this. Nevertheless, Tesco managed to match ahead of Sainsburys (Milne et al 1998). Focusing on the grocery market, it appears that one can compete on price and service though the two may be mutually uncorrelated. Given a price war, the only way to win is to reduce the overall costing on almost the whole range of products. But this should be aligned in a way that does not reduce profit margins of a business. Sainsburys business must have considerably adjusted its operations well to keep in touch with the rest of the market players. Its profit margins were on a downward trend. Thus, the share price was also dwindling. The lowering of prices only promotes promiscuity, and has got nothing to do with customer loyalty (Ram 2005). This view is however conflicting, as a reduction in prices promotes the sale output. The only issue is that it takes much output to make good profits, something which Sainsbury’s has managed to achieve. Conclusion As discussed above, it appears that the two companies are going in different directions. Whereas Sainsburys is on the downside, Tesco seems to be surging forward, leading to the question, where does Sainsburys future lie? It must be clear to Sainsburys that a price positioning does not seem to resolve its issues but rather complicates an already ugly situation. To get out of this trap, Sainsburys should consider copying different innovations while seeking an exit option out of this. This would present the business a sustainable competitive platform from where it can re-launch its business dream. After achieving a leadership position, it becomes the onus of the business leadership to maintain such position. Another growth method by the construction of stores seems to have lost its viability and as a result should not be an option at all (Rhodes 2009). For the company to grow there is need to consider attracting and retaining of customers and thinking of measures to improve the customers’ total expenditure in order to bolster the business revenues. Diversification may also present another avenue for growth for Sainsburys. By this, production of related products can help the company regain an inch in the market. Measures should be made to regain the confidence of its customers if it is to remain in business and be mentioned alongside Tesco. On paper, Sainsburys has a stronger brand than Tesco, but it should be noted that brand leadership has to be continually reinvented to reflect changing market trends References Edward, L, 2000, Direct marketing: strategy, planning, execution, Mc Graw hill, Australia, viewed 24/11/2009, http://books.google.co.ke/books?id=c8WAVq352o8C&printsec=front Dan, 2005, Two marketing strategies: Sainsburys and Pizza Hut, MCLD blog. Viewed, 28/112009, Hansen, E, 2009, Sainsburys marketing strategy, loop Consulting Ltd 1996-2000, viewed, 28/11/2009, Milne, R, et al, 1998, Marketing Science. A business perspective on database marketing and consumer privacy practices, Mc Graw hill, Australia, viewed 28/11/2009, Mentzer & Conrad 1991, journal of business logistics vol, 12, an efficiency/effective approach to logistics performance analysis, Mentzer & Conrad publication, Britain. 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