Business Companion to Financial Markets - Case Study Example

STRATEGIC ANALYSIS OF J SAINSBURY By Student’s Name Code + Course Name Professor’s Name University/College Name City, State Date Introduction J Sainsbury is a leading food retailer in England that consists of a total of 707 convenient stores and 597 supermarkets, Sainsbury’s property, Sainsbury’s online, and Sainsbury’s Bank (J Sainsbury 2016). Sainsbury’s chain of supermarkets has been the longest serving main food retailing chain that was first opened in 1869. The brand has been established on a heritage of offering customers healthy, fresh, safe, and tasty food. The company currently distinguishes itself through providing its consumers with products of high quality, at fair prices, while emphasizing the freshness of the food, innovation and sustainable leadership, and an ethical approach that is strong. The products offered at Sainsbury are developed and improved to make sure that the organization leads when it comes to the integrity of sourcing and the ingredients used. The goal of the company is to improve the experience of its customers while shopping by offering them products of great quality at relatively fair prices. They aim at exceeding the expectations of the customers regarding offering safe, healthy, tasty, and fresh food, thus facilitating easier lives for the customers each day. This paper shall conduct a strategic analysis of the company and make recommendations that, if upheld, would facilitate the company’s sustainability in the future. Sainsbury’s Strategic Position According to Johnson, et al (2008 p. 148), competitive positioning is the role of the competitors in the market that influences their marketing programs and strategies. Immediately after the 2008 global recession, Sainsbury successfully repositioned itself as a supermarket that is highly reliable in helping individuals to live well yet cheaply by offering them tasty and high-quality food at prices that could be deemed fair. As such, the shared perception of Sainsbury among customers in the United Kingdom (UK) is cheap quality food. The company strategy is different from others as it did not embrace the common price driven strategies or price wars including the low-price-low-quality approach (Pietersen 2010, p. 174). In 2011, there was a major scandal of horsemeat mixing in the consumed meat in the UK. It was during this scandal that Sainsbury strengthened its position as it was declared the only place where one could find meat that had not been mixed with horse meat. This declaration served as a major attraction of customers from the company's competitors, with the perceived reliability allowing it to take the second pole position from ASDA which had a market share of 17 percent, relative to 17.5% (The Guardian 2015). The current role of Sainsbury is that it challenges Tesco, the market leader that positioned itself by providing cheaper but quality products. Competing on the same grounds as Tesco has made it difficult for Sainsbury to outperform its major competitor. As such, there is need for the company to reconsider revising its strategic approach to outperform Tesco, especially through product differentiation, given that both companies already offer their products at low prices. It is critical to note that as much as Tesco is a powerful leader in the market, it is not powerful enough to monopolize the market (The Guardian 2015). The Proper strategic development would ensure day-today attraction of consumers and increased sustainability of growth regarding profits throughout the future of the company. An evaluation of the resources and value systems of Sainsbury Resource Evaluation Business strategy is always concerned with linking the competence and resources of a firm with the external environment to allow for achievement of strategic capabilities. Most researchers in business and management have stressed the impact of the external factors on the organization. Such researchers emphasize that the strategy of the firm is mainly established in accordance with the macro-environment’s key drivers (Bracker et al., p. 594). Nevertheless, there have been discrepancies in the positioning approach’s explanation of the effectiveness of the organization. The business environment has presented different organizations with some getting returns on their investments while others have failed. As such, questions have been raised concerning the differences in performance of organizations within a single industry. The capabilities and resources of an organization have been identified as major determinants of the effectiveness of the organization’s strategy, and its success (Grant 2016). This section shall review the resources of Sainsbury’s supermarkets and determine the effectiveness of the company’s resource base in defining its strategy and competitiveness. It is vital to distinguish between capabilities and resources of a company. As such, resources form the productive assets of the company while capabilities form what can be done by the company. Chernev (2010) postulated that the resources of an organization can be categorized as either tangible or intangible. In this case, tangible resources are the financial and physical resources of an organization. The tangible resources for Sainsbury supermarkets include 707 convenience stores and 597 supermarkets, 161,000 employees, £23,949 million turnover, and £1 billion operating income[JSa16]. It is important to determine the opportunities that are available for economizing the use of such resources to determine their actual value to the business. As much as these tangible resources are the easiest for organizations to manage, they remain, at large, as threshold resources. Teutegerg (2010) also stated that threshold resources do not offer much towards the achievement of the company’s competitive advantage. As such, special focus should be directed towards the intangible resources as they determine a company’s competitiveness. Intangible resources are the skills or invisible assets such as accumulated market information, certain technology, reputation, brand name, and the corporate culture (Watson & Head, 2010 p. 111). These resources are highly invaluable to the competitive power of a company owing to their sustainability and potential uniqueness. Case in point, Sainsbury’s intangible resources include high levels of customer information, increased knowledge concerning the retailing industry, good awareness of the brand among the consumers, and a reputation for unraveling service and big brand innovations including the recent mobile app for guiding consumers around the shops using digital maps. The three intangible resources that could be said to be highly valuable to any organization are the product reputation, the reputation of the company, and the know-how of the employees. For an organization to uphold sustainable competitive advantage, there must be unique and valuable resources, which are non-substitutable, rare, and non-imitable (Chernev 2010, p. 163). As such, a firm will achieve its competitive edge if it is implementing a strategy that is creating value, which is not being simultaneously implemented by its competitors. Sainsbury’s resources have played a key role in its competitiveness. Nevertheless, the manner in which such resources have been managed has been a greater determinant of their success within the industry. Value Chain Analysis A value chain consists of a set of activities performed by an organization within an industry, directed towards delivering products or services that are valuable to the market. The basic idea of the concept is that organizations can be viewed as systems that consist of subsystems, which in turn have inputs, processes of transformation, and outputs (Chernev 2010, p. 134). As such, organizations have their inputs, processes of transformation, and outputs that may include money, equipment, materials, buildings, labour, administration, land, and management, all of which are important to its competitiveness. Value chains are thus considered as support tools to the decision process within the organization. The value chain has two sets of categories of activities, which include the primary activities, and the support activities. The primary activities comprise of inbound logistics, outbound logistics, operations, services, and marketing and sales[Wil10]. On the other hand, secondary activities include human resource management, infrastructure, procurement, and technological development. Primary Activities With regards to inbound logistics, Sainsbury aims at offering a broad range of products to uphold customer choice. Nevertheless, the company should improve its distribution system to facilitate consumer satisfaction and reduce cost. Besides, Sainsbury intends to prevent damaged goods through implementation of improved quality control approaches, as this would prevent an unfair transfer of such costs to the consumer (Russell 2013). Special focus has also been directed towards the company’s relationship with its suppliers. The company outsources its distribution network. Considering operations, the activities of Sainsbury are service oriented. The company places an emphasis on the maintenance of the stocks and the shelves, opening each day of the week, and operating within trading hours. The company launched Sainsbury online retail store to allow consumers to shop conveniently for groceries online and have them delivered to their doorstep. This online retail has increasingly become one of the greatest online grocery stores globally (Russell 2013). In view of outbound logistics, more value is being added by Sainsbury in its current service of home delivery. The company has maintained a strict policy for customer management, where the employees are well trained to offer customers adequate assistance in a manner that is friendly. The company has invested in the improvement of its parking facilities, till staff, and trolley collectors to allow for a significant turnaround and attain an advantage against its competitors (The Guardian, 2012). Concerning service, Sainsbury has focused its attention towards addressing the concerns of the unsatisfied customers through improving the department that deals with complaints. It is significant to note that, customers who have not been satisfied by the services they have been offered by a company, are more likely to communicate their experience to other individuals than those who have been satisfied by the offered services. As Sainsbury understands that if they fail to adequately address the concerns of the customers, such customers will be unsatisfied with their reputation and their word of mouth could lead to a spoilt company reputation. Support Activities In view of infrastructure, Sainsbury has reinforced anti-fraud policies within the organization to mitigate chances of internal theft. Besides, the control and planning functions of the company focus on cash and costs control of the operations of the organization (Pietersen 2010, p. 58). Efforts of the financial department within the organization have been directed at reducing the shrink. When it comes to human resource management, Sainsbury has increased training schemes, an aspect that has facilitated knowledge acquisition among its staff, which is an important factor within its strategic capabilities. Also, there has been an increase in investment towards customer service with the view of satisfying the consumer needs and hence promoting loyalty to the brand. The company has established a rewarding system that rewards loyal customers. Concerning technology development, Sainsbury has considerable control over the development of new products among its suppliers[The12]. Thus, the company can influence product innovations to meet the interests of the customers as established by their vast customer data. Finally, when it comes to procurement, Sainsbury heavily relies on information technology communication. This allows the company to improve integration of its knowledge. An Evaluation Product/Portfolio Mix The Boston matric was created by the Boston Consulting Group (BCG). The matrix forms a powerful tool for planning the product portfolio. The tool presents two major controlling characteristics, which include market growth and relative market share (Daft et al., 2010, p. 288). The matrix has four cells namely Dogs, Cash Cows, Question Marks, and Stars. Products that fall within the Dog cell have a low share of a market with a low growth. The products in this cell are not revenue generating and hence the organization should consider getting rid of them as they would tend to need huge investments. On the other hand, products that fall within the Cash Cows cell are those who have a high share in a market with slow growth. Such products generate more revenue for their companies than the investments put in them as they are on top of the chain in their markets. Organizations can hold onto such products or product lines in their portfolio until they stop generating revenue (Williams 2016). Besides, Question marks are products that have low market shares and fail to generate much revenue for the company (Schermerhorn 2012, p. 171). Nevertheless, such products are within a rapid state of growth and hence take up large investments. Such products are likely to gain market share after the market slows concerning growth and hence are likely to become a star and, later on, a cash cow. It is important for organizations to critically analyse and scrutinize Question marks to establish their potential before investing in them. Lastly, the stars are high income generating products holding a high market share in a market that experiences a high rate of growth. The star becomes a cash cow if it holds onto its market share after the growth rate of the market decreases (Griffin 2016). It is important for a diversified company to have stars that are likely to end up as cash cows in their next portfolio for the sake of cash-inflow sustainability in the future of the company. Sainsbury’s BCG Matrix Analysis As presented in the above matrix, Sainsbury’s supermarkets, which fall under the in-store retails, are cash cows. This means that these supermarkets are less likely to experience growth soon. As such, there is the need for Sainsbury to consider other product lines that hold the prospects of growth in the future. Currently, Sainsbury uses the supermarkets and the convenient stores as cash cows, which fund their new ventures, including the online retail, which is currently a “Star” (Internet Retailing 2012). As much as Sainsbury’s Banking is still considered as a Question mark, it is on the verge of becoming a star and hence forms one of the many opportunities for investment (Sainsbury 2014). Such a broad mix of businesses that are cash generating alongside other new ventures in the high growth market are important in ensuring growth and long-term sustainability of Sainsbury. Such an increase in diversity is also likely to reduce the overall business risk of Sainsbury (Watson & Head 2010, p. 78). A critical analysis and evaluation of KEY future directions for strategic growth The overall financial outlook of Sainsbury is currently stable. Nevertheless, minor alterations ought to be embraced in the future as a strategic approach that would allow the company to mitigate any financial risk in the long-term and to facilitate long-term sustainability. It is assumed that the company’s economic activity will remain flat for the next few years. If there occurs a decline or an improvement in such activity, a change will be required in the short to medium term strategy. One of the key areas to be considered in the financial strategy involves debt finance. The company has experienced falls regarding its cost of debt. As such, to lock in such a rate, it is important for the company to consider embracing long-term debts instead of short-term debt. Such an approach will reduce any volatility in the company’s cost of debt[RCh15]. Besides, it will promote long-term sustainability. The financial risk for Sainsbury will thus be reduced and more time will be created for corrective measures to be taken in the case where such costs of debt begin to increase. Another area of the financial strategy that requires consideration involves Equity Finance. It is critical to understand that increases in using equity as a financial source ought to be issued in a manner that does not hamper the dividend cover of the company in the long-term (Arnold 2013). As such, the increase in equity use ought to be equal to or lower than the company’s growth in net profits. Such will ensure that the overall cost of equity and the rate of dividend uphold long-term sustainability. Thus, the current dividend policy at Sainsbury should be upheld with consideration of proportionality between any change and the long-term sustainable profits. Recommendations It is clear that with the increase in information technology, most businesses are continuously embracing online transactions as part of their portfolio. Sainsbury's biggest competitor, Tesco, has heavily invested in the online platform, an aspect that made them stand out from their competitor. As such, for Sainsbury to be able to outperform its competitors, it is important for them to invest heavily in the online business, which as noted above could be considered as a "Star" in the BCG matrix. This shall allow company expansion and reach out to more customers. In addition, it will allow the company to provide its consumers with a unique 24-hour shopping experience as they can easily visit the company's online store at their convenience and make purchases and the products will be delivered to their homes. This paper also recommends that Sainsbury should consider expanding into new markets as they provide new opportunities for expanding its consumer base. Countries such as Pakistan and China provide emerging markets that could prove to be highly profitable if strategically exploited. Conclusion It is evident that Sainsbury has established itself as a key player in the UK market and has established a rich consumer base owing to its reputation. As such, the company needs to take advantage of the awareness of it brand among the consumers to attract more consumers and outdo its competitors to ensure increased profits and long-term sustainability. The company has experienced diverse challenges in the past including lack of an online store and providing a narrow range of products, but has embraced new strategic approaches that have included expanding the product preferences and developing an online facility for shoppers. With increased investment in the online shopping facility, the company is due to reach out to more customers and hence to experience an increase in profits and growth. It is also important for the company to guarantee its sustainability by switching from the high financial risk short-term borrowing to long-term borrowing as this will offer it more time to pay and reduce the cost of debt. References Arnold, G 2013, Financial Times Handbook of Corporate Finance: A Business Companion to Financial Markets, Decisions and Techniques, 2nd ed, Pearson, London. JSa16: , (J Sainsbury, 2016), Wil10: , (Pietersen, 2010, p. 201), The12: , (The Guardian, 2012), RCh15: , (Moyer, et al., 2015, p. 593), Williams, C 2016, MGMT 9: Principles of Management, Cengage Learning, Boston, MA. Read More