Strategic Analysis of Sainsbury - Essay Example

? Strategic Analysis of Sainsbury Contents Strategic Analysis of Sainsbury Contents 2 Introduction 3 Strategic Analysis 3 SWOT Analysis 3 PESTEL Analysis 6 Conclusion 8 Reference 9 Introduction According to the reports based on IGD, the UK grocery market has been steadily increasing and is expected to grow even more in the coming future. The total grocery market has shown an increase from 93.3bn Pounds to 146.3bn Pounds by the year 2008. The UK grocery market has faced some major issues such as the financial crises, high rate of unemployment, tight and limited household budgets to name a few issues. In spite of the prevailing issues, the UK market has been able to acquire a stable and reasonable growth rate (Li, 2008, p.1). There are about 92,796 grocery stores in UK which is further divided into four sections, Convenience store; super markets, hypermarkets and superstores; Traditional retails and online channels (IGD, 2011). The biggest retail grocery chain in UK comprises of Tesco, Sainsbury, Morrison and ASDA, accounts for 67.9% of the total grocery market of UK (Li, 2008, p.2). Strategic Analysis Strategy is defined as the scope and direction of an organisation for long term, which is set to achieve advantage for the organisation by way of configuring its resources within a changing environment and to fulfil the demands of the stakeholders (Paul, et.al, 2010, p.36). SWOT Analysis Strength: Sainsbury ranks third in the supermarket chain of UK with about 14.30% of market share. This company has a strong market position in UK and was a pioneered in self service relating and in the development of private label goods. Sainsbury initiatives have kept the company at the number 3 position. Sainsbury strength lies on its strap line which states to try something new each day (Li, 2008, p. 4). The Business Model of Sainsbury, which comprises of five headings, great food offered at fair price, accelerating the growth of non food items, reaching customers by way of traditional means of channels, expanding supermarket space and property management is one of the important strengths of Sainsbury. Major strength of Sainsbury, is that the brand believes in providing the customers with sage, healthy, tasty and fresh food. The company emphasise more on fresh food and continues to innovate products according to the requirements of its customers. The company currently transact 21 million customers per week and have captured a market share of 16% which further adds to the strength of the company. The company offers about 30,000 products and also offers a wide range of non food products and services. The internet based home delivery service also adds to the advantage of the company (J Sainsbury Plc, 2011, p.3). Weakness: A major weakness of Sainsbury is that the company deals only in two types of store formats, the traditional supermarket and the convenience stores. As compared to other grocery retail outlet, Sainsbury has the least number of types of stores. Tesco has six different store formats which have greatly contributed to the success of Tesco. Another weakness for Sainsbury would be recession. It has been reported that the company has shown signs of poor sales figure with the warnings of recession. Sainsbury has recorded the slowest sales growth ever since 2005 and its share price dip to 327.7p which was analysed that the company was lagging behind its competitors. The company has the weakest operating margin in the food retail sector as compared to its competitors such as Tesco (Finch, 2010).Thus the company must overcome the weakness by using its strength. Opportunities: A huge opportunity lies with Sainsbury to grow as the UK retail market is growing at a steady rate, it provides ample opportunity for the company to utilise its resources and capabilities and grow and achieve a decent market share. With its five main areas of growth, this includes great food at great price, increasing the number of complimentary food, reaching customers by home deliver, and by active property management would add up to the list of the companies opportunities for the future. According to the annual report, supermarket accounts for less than 15% of the UK non food market which provides a huge opportunity for Sainsbury. The company has progressed in the development and accessibility of the non food products and sales have reported to increased three times more than the food items. Another opportunity lies with Sainsbury is to turn supermarkets into a larger destination stores. Sainsbury new stores in Lincoin, Crayford and Standway, of 100,000sq ft are few good examples. The company has also invested a huge amount in IT, people and supply chain to support their growth in non food items. The company continues to take advantage of the opportunity of growing more space and this year Sainsbury has opened 21 new stores, about 24 extensions and 47 convenience stores (J Sainsbury Plc, 2011, p.10). Threat: Sainsbury threat comes from the other retail grocery such as Tesco and ASDA. In 1995, the company failed to recognise the threat that was imposed by Tesco which lead the company lose its market share and was pulled down from the second position by ASDA to third. Thus in the current scenario, a major threat lies from Tesco as it’s the market leader in the grocery sector. Also the new tax rate introduced by the Scottish Government could impose a threat to Sainsbury in opening a new store in Elgin. Therefore the company, due to a 20% increase in the tax, is re thinking about the expansion plan throughout Scotland (Crowther, 2011). PESTEL Analysis Political: The political factors also impact the functioning of the business. If the political conditions of the country are stable the business gets opportunities to flourish. The UK government encourages the retailers to provide opportunities for students, elderly workers and disabled at a large number and provides them job (Ivory Research, 2011). With increasing globalization, Sainsbury has an opportunity to compete against the unforeseen challenges. The company can further expand into emerging countries through joint ventures or partnership in order to explore the new markets. Economical: As per the report of Verdict, economic conditions are continued to be tougher this will impact the retail market as a whole. During the 1990s economic downturn, this helped in the development of discount sector. Similar conditions would appear, strengthening the discount stores of UK. Though it was estimated that these discount stores would hamper the food and grocery sector, but fortunately it did not occur (Verdict, 2008, p.44). Social: The essential of any business is to understand the culture of the society. Changes in the social trend impact heavily on the business. With UK economic condition, the population of UK have changed their spending habits and prefer saving for future, hence reducing the purchase pattern of the population. Though the economy has proved to be stable in the current financial, still the UK consumers tend to save and not spend unnecessarily. Another social factor is emphasis made by the government to promote healthy eating particularly due to an increase level of obesity with the UK population. This has inclined a shift on the eating habits of the consumers and this provides an opportunity for Sainsbury to introduce healthy food. Technological: A new technology creates new products ad new processes are in turn created by the modern technology. The internet seems to the key point for the growth of any company in the western countries. The online retail economy is estimated to reach 81bn Pounds by 2011; the e-retail market is currently growing at 16% annual in spite of the economic downturn (IMRG, n.d). Sainsbury can use the e-retail to its advantage like its competitors Tesco which utilise its own online delivery model. The company can adopt technology like RFID which Wal-Mart uses for an effective and efficient supply chain. Currently Sainsbury technology ranges from televisions to home entertainments systems, laptops, mobiles and more (Sainsbury’s, n.d). Environmental: The food and grocery industry has achieved a zero growth in packaging. The UK food and grocery is working to reduce the impact on the environment by cutting HGV road miles, reducing wastes, and by cutting the green house gas emission (IGD, 2011). In the same way Sainsbury manages the environment impact through their climate change strategy. To undertake the strategy the company has divided the business into three sections, product, customer and the company’s operations. Sainsbury aims to reduce the impact on environment by introducing programs relating to the environmental activity between the current fiscal and 2020, and aims in becoming the greenest grocer of UK (J Sainsbury Plc, 2011, p.16). Legal: The UK government has raised the VAT to 20% as the government has to finance a budget deficit thus affecting the non food sectors of the retail industry. As per the Low Pay Commission report, the 2008 and 2009 ratings have resulted in the increase of the minimum wage by 15.5%. This increase would result in the operation cost of supermarkets (Ivory Research, 2011). The company, Sainsbury also has an effective legal system managed by Tim Fallowfield. Sainsbury has dedicated internal legal resources in order to provide its colleagues with day to day advice on activities (J Sainsbury, 2010, p. 26). Conclusion Analysing the company’s SWOT analysis and PESTEL, it can be concluded that Sainsbury has been performing stable in the UK retail grocery market. The company presently ranks third next to ASDA and currently throwing no stone unturned to retain its number two position. The company has been investing in growing its space and concentrating more on the non food section. Sainsbury clothing, TU brand is the seventh largest brand in the UK market and expanding the women wear into accessories and lingerie. The company is enjoying a growth rate of 20% in areas including home textile and books. Sainsbury is an establish food brand in UK and popular among its consumers. It has improved its profit immensely from the downturn it has faced in 2004 and it is important for Sainsbury to go to the next level and challenge one of its biggest competitors Tesco. Reference Bowhill, B. (2008). Business Planning and Control: Integrating Accounting, Strategy, and People. John Wiley and Sons. Crowther, S. (2011). Scottish Government tax threat to Sainsbury's plans. [Online]. Available at: http://local.stv.tv/elgin/news/4648-scottish-government-tax-threat-to-sainsburys-plans/. [Accessed on December 5, 2011]. Finch, J. (2010). Sainsbury's poor sales figures come with recession warning. [Online]. Available at: http://www.guardian.co.uk/business/2010/mar/24/sainsbury-poor-sales-growth. [Accessed on December 5, 2011]. IGD (2011). Sustainability. [Online]. Available at: http://www.igd.com/index.asp?id=1&fid=1&sid=5. [Accessed on December 3, 2011]. IGD. (2011). UK grocery Retailing. [Online]. 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