The Recent History of Sainsbury and TSco Companies - Report Example

Running Head: INTERNATIONAL FINANCIAL MANAGEMENT Tesco Vs Sainsbury of the of the Tesco vs. Sainsbury Introduction In this rеport I am going to conduct market analysis of recent history of Sainsbury and Tеsco and this will provide reasons for Tеsco’s success and Sainsburys failure in British retail supermarket industry specifically and global market place generally. An investigation into competitive situation between Sainsbury and Tеsco is conducted and which will provide what are the strength and weaknesses of both enterprises and what are their respective market shares. In the end there will be an overview of recent financial history of both Sainsbury and Tеsco with the examination of the past years financials. The market research provided can demonstrates the market share of UK supermarkets and from which, we can see that Tеsco has the largest market share, which is about 54%; compared with Tеsco, the market share of Sainsburys is 29% less than it. Tеsco Tesco is the foremost supermarket in Britain among small grocery stores under the “Tesco Metro” brand, big supermarkets remote cities (Tesco Extra) and round the clock 24/7 stores, “the British Group”, Tesco, is the king of supermarkets in Britain. Tesco has tailored to the fast technological changes. It makes an astounding profit from its on-line sales site (Tesco.com) (Annual Report, 2007). Tesco also owns gas petrol stations and provides financial services. With approximately 900 stores in all, nowadays Tesco is a worldwide player. It is well established in Ireland, Central Europe (Pоland, Slovakia and the Czech Republic) and Asia (Thailand and South Korea). Tesco has 586 stores though out Great Britain and From 1992 Tesco has grown significantly and has amplified its market share from 10.4% to 15.2%. The significant raise in customers has also given Tesco a large amount of profit. (Tescocorp.com) Tesco In millions   2007 2006 2005 2004 2003 Total Revenue   42,641.00   39,454.00   33,866.00   30,814.00   26,004.00  Total Cost   39,993.00   37,174.00   31,914.00   29,079.00   24,520.00  Net Income   1,892.00   1,570.00   1,344.00   1,100.00   946.00  Source: Annual Report 2000-2007 Tesco has 164,500 shareholders. Tesco’s profit is about 505 million pounds after the tax; about 50%of this is then dispersed to the shareholders as dividends. The rest approximately 250 million pounds invested as investment in stores and improving services for the customers. The standard shareholder holds between 1-1000 shares, but also a bulky quantity of shares is held by banks, pension funds and building secretes. Tesco’s share prices have risen since February 1997 when it was 349p to 586p on the 1 Jan 2008. The shares have reached a high price of 603p. With this growth Tesco’s is now the largest super market chain. (www.tescocorporate.com) Quarterly Annual Annual (Aug 07) -2007 (TTM) Net Profit Margin 4.14% 4.41% 4.59% Operating Margin 5.78% 6.21% 6.41% EBITD Margin* - 8.27% 8.51% Return on Average Assets 7.34% 7.94% 8.19% Return on Average Equity 17.71% 18.85% 19.84% *EBITD = Earning before Income and Tax Deduction Strenths: Tesco has overall 30% of the grocery market share in the UK, which is approximate to combined market share of its both rivals, Asda and Sainsburys and diversity in business operations and business units like financial services, electronics, grocery, now property etc. Weakness: Complex technological system which results into project failures like online grocery delivery in recent past. Another major weakness of Tesco is the Supply chain disruptions. Sainsbury “J Sainsbury plc” is the holding company of the well known UK chain Sainsburys Supermarkets Ltd, mostly known as “Sainsburys”, a chain of supermarkets in the United Kingdom. J Sainsbury Plc also has interests in property and banking. The net total worth of the group is £8.6 billion (Annual Report, 2007). Sainsbury In millions   2007 2006 2005 2004 2003 Total Revenue   9,250.00   8,135.00   9,016.00   7,734.00   8,327.00  Total Cost   8,991.00   7,831.00   8,800.00   7,647.00   8,185.00  Net Income   161.00   198.00   127.00   6.00   58.00 Source: Annual Report 2000-2007 Initially, till the 20th century Sainsburys was the market leader in the UK supermarket sector, but in 1995 it lost its place as the UKs largest grocer to Tеsco and in 2003 was furthre pushed to 3rd position by ASDA. The companys earnings has been improved since the launch of a recovery programme by CEO “Justin King” in 2004, with it reporting its 12th consecutive quarter of sales growth in January 2008. Quarterly Annual Annual (Oct 07) -2007 (TTM) Net Profit Margin 1.74% 1.89% 2.06% Operating Margin 2.80% 3.03% 3.24% EBITD* Margin - 5.95% 6.07% Return on Average Assets 3.09% 2.90% 3.20% Return on Average Equity 6.62% 7.89% 8.35% * EBITD: Earning before income and tax deductoin Strengths: Highly talented and organized management of human resources, with the banking of sound group “J Sainsbury” which has expertize in banking in property market. Well organaized and state of art technology implemented at both level (on-site and online). Weakness: Due to the fact that Sainsburys is lack of market research, it has not gained success in the international market. Sainsburys once established its store in USA and Egypt. However, it is unsuccessful so that Sainsburys had to winding-up in both countries. Current Situation Sainsburys is the oldest food retailer in the UK. Different from Tеscos price conscious, Sainsburys more concerns itself as a high quality provider. In order to win the belief of customers, Sainsburys shows the process of food production and the method of choice material on its website. In recent years, due to drastic competition on retailer, Sainsburys also pays more attention to the price. The same as Tеsco, Sainsburys also adopts business diversification. Following the pattern set by Tеsco, Sainsburys increases the number of non-food lines it stocks. Around 80 stores have dedicated non-food spaces, and 2,500 new non-food lines are now in place. Selected stores also stock clothing and childrens products. Furthermore, the company is opening specialist cook shops in key outlets, capitalizing on Sainsburys good reputation for fresh producing and more up market lines. Due to the fact that Sainsburys is lack of market research, it has not gained success in the international market. Sainsburys once established its store in USA and Egypt. (J Sainsbury plc, company overview) However, it is unsuccessful so that Sainsburys had to winding-up in both countries. (J Sainsbury plc, company overview) In order to improve the operation management, a two-day training course has been carried out by Sainsburys. There were over 1,000 managers from stores and central teams, including the Board attended the course. Furthermore, every store colleague received customer service training to improve service quality. Sainsburys acquired 14 stores from Morrisons (13 Safeway branded stores and one Morrisons store) which were located primarily in the Midlands and the north of England. It will be helpful for Sainsburys to expand its market share. (J Sainsbury, Company overview) With the multidimensional, incorporating aspects of services, Tеsco launched wide range of retail branded such as banking, insurance, financial services (credit card, loans, mortgages, and savings), telephone and petrol station services. The use of brand and services help Tеsco to gain it competitive advantage in the whole supermarket industries. Compared with Tеsco, Sainsburys also provides wide range of services, such as bank services (involving 12 types insurances), financial services, but more concerned about with higher standards, especially its online delivery services. It believes that supermarket goes up by giving customers quality products. The online- shopping facilities has enabled Sainsburys to deliver large electrical appliances, music and books, gardening equipment, etc, direct from warehouses. Therefore, customers from the world can conveniently search their favorable products online, which also reduced companys cost. Because of the Oligopolistic Competition, the supermarkets are sensitive to each others prices. Thus either Sainsburys or Tеsco always considers about its nearest competitors price, and determine its own price to support its Price Adjustment Strategy. Conclusion Undoubtedly, Tеsco has beaten Sainsburys successfully in many aspects, such as international expansion, non-food products and so on. Therefore, the Tеsco should keep and improve its competitive advantages to maintain its leading place. On the other hand, Sainsburys should make greater effort on its marketing mix to be more competitive. For example, within the aspect of international expansion, Sainsburys should do wider range of market research, in order to understand the local culture and suit the taste of local customers. References Annual Report 2000-2007; Tesco Plc, Official Website, www.tesco.com Annual Report 2000-2007; Sainsbury Plc, Official Website, www.sainsbury.co.uk J Sainsbury plc: About us: Company overview: Our businesses; http://www.j-sainsbury.co.uk/index.asp?pageid=187 Tesco: Our History. www.tescocorporate.com. Tesco plc. Retrieved on 2008-03-27. Read More