Sainsburys Response to the Environmental Change - Case Study Example

Sainsbury Name Unit Date Abstract Sainsbury have been undergoing several changes in response to the environmental changes. Looking at the Supermarkets macro-environment, the main factors that have impacted Sainsbury are political economic and technological. The European Union has removed trade restrictions, enabling a free trade operation. There have been strong growth in the labor unions and also the rate of unemployment has risen. This has made Sainsbury to cater more for their employees and also face a declining purchasing power due to unemployment. The slowdown in the economy has also affected Sainsbury expansion. Technology has also been expanding at a very fast rate. This has made Sainsbury to increase its use of technology to be at par with the current trends in marketing. The competitive analysis of Sainsbury using Porters 5 forces shows that there is major competition rivalry from ASDA, Tesco and Morrison. The market position from this analysis shows that the main problems lie with competition rivalry. The customers purchase behavior is influenced by the costs and quality. This has made Sainsbury empathize more on quality of their products. The environment has been dynamic with major change occurring due to competition and technology use in marketing. Sainsbury have to diversify their products and venture into the global market. This will enable expansion and a better competitive advantage. Table of Contents Abstract 2 Table of Contents 3 Introduction 3 Macro environment (PEST) 4 Political 4 Economic 5 Social factors 5 Technological factors 6 Competitive environment (five forces) 6 Threat of substute 6 Buyers bargaining power 7 Barriers to entry 7 Suppliers bargaining power 7 Existing rivalry among the competitors 7 Customer analysis (Customer behavior) 8 Any major changes in the environment 9 Recommendations 10 Conclusion 11 References 12 Introduction Sainsbury was founded in 1869 as J Sainsbury by john James and Mary Sainsbury. The corporation gained popularity during this time due to its ability to offer cheap quality products to the market. In 1882, the food retailers started to focus on more affluent areas where it offered high quality products at premium prices. During same period, the food retailer faced stiff competition and had to expand three times so as to be able to compete with other rivals such as Liptons. In 1973, the food retailer had reached a status where it was ready for stock market. Sainsbury was able to expand and offer more products such that in 1990 it was the leading food retailer. This is due to competitive advantage brought by its size. However, the Food retailer has faced a lot of competition from other companies such as Tesco and ASDA (Ian, 2000). The market environment has been changing at a fast rate within the food industry, leading to a Sainsbury response to the dynamic environment (Jones, Hillier & Comfort, 2013). This report will look at the Sainsbury response to the environmental change by looking at Macro-environment, competitive environment, consumer behavior and major changes in the environment. Macro environment (PEST) Looking at Sainsbury macro environment, there are several factors that can have an effect on the supply and demand levels. In order to fully analyze the environmental factors that affect Sainsbury, PEST analysis is the best tool to use. This looks at the political, economic, social and technological issues. The analysis also helps in giving the business insights on the opportunities and how to take advantage of them as well as possible threats relationship (Bensoussan & Fleisher, 2008). Political Sainsbury have been in existence for a long time. During this time, there have been a lot of changes politically. The labor unions have grown stronger and also taxation. The government policies on taxations have great effect on the market. This affects the purchasing power and the business operations in the country of operation. Of late, the global labor unions have gained more power. Sainsbury has more than 150,000 employees both permanent and temporary. The corporate have recognized the important part that the employee plays in their success. By listening to their employees’ voice, the companies have avoided loss that can occur due to workers strikes or demonstration. One of the major political benefits that Sainsbury have acquired is the EU trade restrictions. There are fewer trade restrictions in the United Kingdom making it an open market field for the company (Jones, Hillier & Comfort, 2013). Economic The economic situations of the country of operation affect the industry in a great way. The economic factors affect the costs of operation, prices and demand of the products. The economic slowdown has led to unemployment and inflation especially in the cost of food prices. The demand for the products from Sainsbury has declined due to the rate of unemployment and the high prices for food. This may lead to the company decreasing its food production which will further lead to an increase in prices. This problem can be solved through globalization. The food retailer should look into the emerging markets to enable it reduce risks and recover from economic slowdown (Thomson &Fuller, 2010). Social factors The growth of technology has led to many people access internet in their homes. There is also increase in TV viewing among the population. This is an avenue that has been exploited by Sainsbury where they have increased their advertisement through use of TVs and Internet. Through this, it’s possible to gain more sales. The population growth rate have been insignificant, this is due to the lower birth rate and increase in the older population. This detail shows that there will be no significant market evolution that will be brought by the population (Thomson &Fuller, 2010). Technological factors Global communications is one of the most advantageous technological factors. As Sainsbury expands, communication will be vital in their operations. The changes in the technology have affected the way in which the business operations are carried out. The rapid rate of change in technology has led to distribution technologies and better customer relationship (Bensoussan & Fleisher, 2008). Competitive environment (five forces) Sainsbury faces competition from four major players. These are Tesco, ASDA, Sainsbury and Morrison/Safeway. Tesco and ASDA have been the main competitors with Tesco being the market leader having overtaken Sainsbury. Using the porter five forces analysis, it well is possible to determine Sainsbury market position in relation to its competitors. The five forces are threat of substute, the bargaining power of buyers, bargaining power of the suppliers, competition rivalry and barrier to new entry (Bensoussan & Fleisher, 2008). Threat of substute The threat of new products becomes high in situations where there is possibility of the consumer getting substute products with the same costs for the products. The convenience and organic stores are the main substute for the Sainsbury products. The threat that is posed to Sainsbury by the substute is low due to fact that they can only stock limited amount of products. This is due to the fact that the shoppers will still need to attend to Sainsbury to buy the major products (Bensoussan & Fleisher, 2008). Buyers bargaining power This occurs in instances where the buyers have the capability to affects the sellers’ terms of sale. This occurs in situations where the buyers are buying in large quantities. Looking at this issue on that perspective, Sainsbury customers have a low purchasing power. This is due to the fact that most of the customers are individuals who make small purchase quantities (Bensoussan & Fleisher, 2008). Barriers to entry To enter into the food retailer market, it requires a lot of capital investment. This leads to a low threat to Sainsbury for new entrants. For a new entrant into the food market, it would take years for the company to gain the reputation of the existing firms such as ASDA, Tesco and other supermarkets. This makes the market entry for a new entrant to be hard (Thomson &Fuller, 2010). Suppliers bargaining power Suppliers’ capability to have high bargaining power occurs when they are few. The bargaining power of the Sainsbury is low since the supermarkets have many suppliers. They are also expected to follow the laid down terms by the food retailer (Thomson &Fuller, 2010). Existing rivalry among the competitors The UK food retail market has a high rater of rivalry among the competitors. This is evident among the five main supermarkets. The main competitors are ASDA, Tesco, Waitrose and Morrison. The competitors use various tactics to win the customers on their side. This makes the competition stiffer with each of the supermarket trying to outdo their competitors. At the moment, ASDA and Tesco have been able to outdo Sainsbury in the competition (Thomson &Fuller, 2010). Customer analysis (Customer behavior) The consumer behavior looks at the way in which the consumer practices their buying behavior. The customers have three major roles in the analysis. The roles are buyer, user as well as the payer. The main asset in managing the customer behavior is there relationship marketing. This involves understanding what the consumers’ wants and their purchase pattern. Through understanding the consumers’ behavior, it becomes easier to attract the consumers. According to Sainsbury, quality of the products attracts the customers. The consumers’ purchases in the food industry are throughout the year. This is due to the fact that foodstuff is an essential commodity. This has led to the supermarkets marketing its products as of high quality at reasonable prices. This is a strategy that is intended to attract more customers to Sainsbury. The quality of the food is one of the most sensitive issues that can attract or deter the customers. This means that the supermarket have to ensure that they offer high quality products to the customers relationship (Bensoussan & Fleisher, 2008). In some cases, the customers purchase behaviors are affected by the brand. Sainsbury have also worked hard in maintaining a strong brand that will enable the customers to remain loyal. This means that the supermarket have to avoid scandals that may tarnish the brand name and maintain high standards of the consumer relationship. Through this it will be possible to retain the customers by use of the brand name. Sainsbury have also established close relationship with the consumers’ in order to try and gain more insights into their purchasing behaviors. This have been through market promotions and satisfying the customers so that they may come back again. The consumers have been more aware especially on the price variation and quality which have a profound effect on their purchasing behaviors. Despite the efforts to manage the consumers’ behaviors, the loyalties have been diminishing (Jones, Hillier & Comfort, 2013). Any major changes in the environment The food retailing markets have evolved a lot in the past decades. One of the major changes in the environment includes the changes in the size of the households. Unlike in the past where a single household consisted of several peoples, the households in most parts of the UK have two persons. There have also been increases in the single households. Another change is technology. Today’s business environment is dominated by technology where the purchases can be made online. The customers do not to be physically present in the business premises to make purchases. There have also been development of the consumer’s websites where they can put their views on the products and also to give complains. These have led to many of the business to start global operations. Promotional online activities have also been enabled through use of internet. This has made many of the business to start online business to capture more customers. The role being played by IT in the market can not be underrated (Sekhar, 2005). Diversity in the workplace is another change in the business environment. As the business expands, there has been increase in workers from different backgrounds and nationality. This has led to the organizations being multicultural in their management. Being able to handle a diverse workforce is one of the main characteristics of today’s business environment. Sainsbury expansion will require the management to be able to cater for all the employees irrespective of their background. It’s also important to know that the market is dynamic and changes takes places at a very fast rate. Consumers have also become more aware of their rights making. This has led to the need for the companies to increase their marketing so that they can gain more customers. This has made the market more competitive than when Sainsbury started. The changes require Sainsbury to come up with new techniques (Bensoussan & Fleisher, 2008). Recommendations Sainsbury has to make several changes in order to survive in the current market environment. This is due to increasing competition and changes in technology. Venturing into new markets is one of the steps that the supermarket should take. This is due to the fact that home market has more competition. Relying on the home market only can put Sainsbury in a bad situation during competition. Most of the emerging markets are capable of providing cheap labor and hence lower the cost of operation. For example, ASDA has support from Wal-mart in USA. This helps the retailer thrive despite changes in the market situation. The competitors such as Tesco and ASDA have global operations, which enable them to compete better and adapt to market changes (Thomson &Fuller, 2010). Sainsbury should also intensify its technology use. This is an avenue that can help the supermarket in maintaining its home market and expanding into new territories. Technologies have made communication easier between the firms and their stakeholders. Technology can also help a lot in studying the consumers’ behaviors and making strategies on how to retain them. This is an avenue that should be more explored to help the business relationship (Bensoussan & Fleisher, 2008). Diversification should be carried out through development of new products to enable growth of the supermarket. Diversification can also include introducing their products to a new market through export, alliances or entering the new market. Introducinf new products act as an avenue for acquiring new customers. This enables the supermarket to make more revenue and also reduce risks. Introduction of new products should be done cautiously through performing feasibility studies. This ensures that the introduced product does not fail and bring loss. Sainsbury can also make sure they increase their presence in the areas where they have few stores. This will enable their brand to be more available (Thomson &Fuller, 2010). Conclusion Sainsbury as a major retailer supermarket in UK have experienced changes in the past years. These involve increased competition and changes in the marketing environment. The retailers have lost their leading position to ASDA and Tesco as the world largest foods retailers. This has led to the company to respond to these changes by trying to capture the market using appeal for quality products, good consumer relationship and listening to their employees voices. This has been discussed under the supermarket’s macro environment, competitive environment and the consumers’ behaviors. Technology changes and changes in households have been the major environmental changes. To be able to survive in the competitive market, Sainsbury have to invest more on technology, venture new markets and diversify their products. This will enable them to have a competitive edge against their main competitors. From the analysis, the supermarket has to make sure that they do not lose the home market to the competitors who seem to be very aggressive. Sainsbury will have to put more efforts in their response to the changes. References Bensoussan, E & Fleisher, S. C. 2008, Analysis without paralysis: 10 tools to make better strategic decisions, Pearson Education Ltd: USA. Ian, C. 2000, ‘Retail power, competition and local consumer choice in the UK grocery sector’, European Journal of Marketing, Vol. 34, no.1, p. 975-1002. Jones, P., Hillier, D., & Comfort, D 2013, ‘In the Public Eye: Sustainability and the UK's Leading Retailers’, Journal of Public Affair, Vol.13, no.1, pp.33-40. Sekhar, S 2005, Business Policy and strategic management, International Publishing House, New Delhi. Thomson, N & Fuller, B 2010, Basic strategy in context: European Text and Cases, JohnWiley & Sons: UK. Read More