How Well Placed Is Sainsbury PLC to Maintain Its Market Share and Market Position within the UK - Case Study Example

How well placed is Sainsbury PLC to maintain its market share and market position within the UK in the current economic climate 0 Introduction UK market, as also most markets worldwide, is not stabilized. At the same time, the UK economy has been considered as one of the most powerful worldwide. However, in the period that followed the 2008 recession the pressures on the UK market have been strong, a fact that affected the performance of most the market’s industries. A similar trend has been developed in the British supermarket industry. The particular industry is characterized by high competition, an issue that has caused concerns to the managers of firms of the specific sector: securing competitiveness and market share is regarded as one of the most critical challenges for managers of UK supermarkets. Current paper presents and analyzes the strategic position of one of the industry’s most powerful firms: Sainsbury. Emphasis is given to the potential of the business to keep its market share and its market position within a highly competitive market, such as the UK market. It is revealed that, so far, the strategic choices of the organization have been appropriate for securing its market position. However, in the future an update of these strategies would be necessary especially since the UK supermarket industry is a highly dynamic industry and changes in various parts of the industry are a common phenomenon. 2.0 Sainsbury PLC – Analysis of market position and competitiveness 2.1 Company overview Sainsbury was first established in 1869; the first store of the company was based in London (Sainsbury, 144 years of history). Through the decades the organization has been related to a series of innovative activities, such as the first firm of the food industry that introduced a computerized system for supporting its distribution activities, it was in 1961, the first firm of the industry that incorporated organic food in its products, in 1986, the first retailer that provided to its customers the option to buy ‘certified palm oil’ (Sainsbury, 144 years of history), in 2009 and the first retailer that achieved ‘to decrease the food waste, from its production units, at zero levels’ (Sainsbury, 144 years of history), a target achieved in 2012. The organization has developed the following approach for managing its activities: a) emphasis is primarily given to customers’ needs: the food provided to customers is of high quality while pricing is kept at low levels, as possible; b) at the same time, the needs of suppliers, in regard to a fair price, are covered, a fact that has contributed in the establishment of a proactive relationship between the organization and its suppliers; c) issues such as health, sustainability and innovation are also taken into consideration by the firm’s managers during the strategic planning process (Sainsbury, Our Approach). 2.2 Financial position and performance compared with competitors In general, the financial performance of Sainsbury can be characterized as quite satisfactory. Indeed, as made clear through the table in Figure 1, in 2012/2013 the organization’s sales have reached the £25,632m from £24,511m of 2011/2012. Also, for the same period, an increase has been achieved in regard to the firm’s profit, reaching the £614m in 2013 compared to the £598m of 2012; as a result, the dividend per share was increased to 16.7p in 2012 from 16.1p in 2012 (Figure1). Figure 1 – Financial summary (2013 Annual Report, p.1) Figure 2 – The profitability ratios of Sainsbury’s from 2006 to 2011, as compared to that of Morrisons’, of 2011 (source: Kalmarova 2012, p.19) Moreover, the profitability ratios of Sainsbury’s for 2006 to 2011 show a clear increase in the organization’s profitability, especially in regard to the return on equity which reached the 11.78% in 2011 compared to 1.46% in 2006 (Figure 2). Still, the financial performance of the company seems to be at similar level with that of one of its major competitors, Morrisons. The efficiency ratios of Sainsbury’s for the same period lead to a similar assumption (Figure 2a). Figure 2a - The efficiency ratios of Sainsbury’s from 2006 to 2011, as compared to that of Morrisons’, of 2011 (source: Kalmarova 2012, p.10) According to the above, the competitiveness of the firms towards its rivals is not secured, as also verified through the figures presented below. The UK supermarket industry is dominated by four firms, Tesco, Sainsbury, Morrisons and Asda (Neville 2013, par.1). The changes in the market share of the industry’s most powerful firms for the period July 2012 to July 2013 are presented in the table in Figure 1 below. The first four firms of the table, from top to down, are considered as the industry’s leaders. The ones that follow, such as Waitrose, Aldi and Lidl, try to enhance their market position towards their extremely strong rivals. Supermarket Market share – July 2012 Market share – July 2013 Sainsbury 16.6% 16.6% Tesco 30.7% 30.1% Morrisons 11.9% 11.7% Asda 17.3% 17% Waitrose 4.8%% 4.5% Aldi 3.6% 2.9% Lidl 3.1% 2.9% Figure 3 – Market share of UK’s most important supermarkets in regard to two time points: July 2012 and July 2013 (source: Neville 2013 and Chapman 2012) According to the table in Figure 3, Sainsbury has been the only supermarket – among the four biggest of the sector – that it managed to keep its market share standardized between July 2012 and July 2013 despite the pressures from the sector’s less powerful competitors; the latter have achieved an important growth for the same period, a fact related to their emphasis on affordable pricing and customer services. Indeed, from January to July 2013 supermarkets such as Waitrose and Aldi managed to enhance their performance, improving their market position, by emphasizing on discounts (Neville 2013, par.2). These supermarkets account, in total, for the 11.5% of the sector, a figure that it is considered as encouraging if taking into consideration these firms’ market share in the past (Neville 2013, par.2). In other words, a decrease of the distance between the industry’s powerful and the less powerful competitors has been identified, indicating the differentiation in consumers’ criteria for choosing a supermarket: instead of trying to be loyal to a specific supermarket customers tend to focus on the pricing level of each supermarket in order to make their choice. Indeed, from Christmas of 2012 onwards, an important change has been reported in regard to the customers’ preferences, as related to the grocery sector: consumers have started to prefer small to medium – size groceries and retailers instead of big supermarkets (Felsted 2014, par.15). In any case, the supermarket industry of UK could be characterized as rather ‘an oligopolistic sector’ (Economics Online 2012, par.1). In an industry with such characteristics the strategies followed by firms would be understood mostly through ‘the game theory’ (Economics Online 2012, par.1). 2.3 Sources of competitive advantage 2.3.1 Resource Based View The Resourced based View theory is based on the following idea: each organization can develop a competitive advantage if it manages to combine appropriately its resources (Begemann 2008, p.6). However, the theory refers not to all organizational resources, but only to ‘distinct resources’ (Begemann 2008, p.6). In the context of the particular theory the sources of each organization are categorized to two, broad, categories: ‘tangible, i.e. physical assets, and intangible, i.e. intellectual assets’ (Henry 2011, p.131). According to the Resource-based theory, organizations operating in the same sector can be highly differentiated as of their competitiveness as their resources are different (Helfat and Peteraf 2003, p.997). In the same context, the competitiveness of a firm cannot be standardized as its resources are expected to change over time (Helfat and Peteraf 2003, p.998). Obonyo (2013) has tried to identify the strategies that supermarkets should introduce for increasing their competitiveness. After studying the cases of supermarkets in developing countries Obonyo came to the conclusion that these firms cannot increase their competitiveness ‘without adopting aggressive strategies’ (Obonyo 2013, p.17). In other words, the Resource Based View is related to two concepts: ‘resource heterogeneity and resource immobility’ (Acosta et al. 2011, p.46). The first concept denotes that a firm can achieve a competitive advantage only when its resources are not standardized, while the second concept refers to the potential of the resources to keep their uniqueness in the long term (Acosta et al. 2011, p.46). According to the Resource based View, the sources of Sainsbury that create a competitive advantage are the following: a) Tangible resources, such as: a1) Financial Resources; emphasis is given to the firm’s profitability, which shows signs of continuous growth, and the management of the firm’s funds; for example, in 2013 the firm’s borrowings were estimated to £24m while in 2012 borrowings reached the £72m; a2) Human Resources: Sainsbury has received a series of awards for its HR strategies; the organization is included in the list of Times with the 100 best graduate employers; also in 2012/ 2013 the organization was given the award of ‘Top Companies for graduates, by the magazine JobCrowd’ (Sainsbury, Support and Rewards); a3) IT; the firm has developed its e-business potentials through the introduction of advanced features in its website; e-business can be a critical sources of competitive advantage (Acosta et al. 2011, p.46); b) Intangible resources; b1) Reputation; the firm’s reputation in UK is high. In fact, the firm is included among the sector’s four strongest competitors, as explained in section 2.2 above. In 2013 the firm was the only one, among the group of the sector’s four biggest firms, that managed to keep its share stabilized, compared to 2012, as analyzed in section 2.2. For this reason, the reputation of firm is considered a source of key competitive advantage for the organization. 2.3.2 Porters Value Chain Another theoretical approach that can be used by organizations for developing a competitive advantage is the Value Chain theory of Porter. The particular theory promotes the view that the organization should be considered as ‘a system of processes’ (Needle 2010, p.275). These processes are supported by resources that ‘can create value only if they are appropriately combined’ (Needle 2010, p.275). The Value Chain theory of Porter is quite useful for identifying the level of value which ‘each organizational activity can create’ (Sekhar 2009, p.115). It should be noted that the effectiveness of a value chain depends on its ability to address the needs of all stakeholders (Ilyas et al. 2006, p.59). In the case of Sainsbury this means that the organization could increase its value by responding to the needs of its customers but also of its employees and its shareholders. Figure 4 – Porter’s Value Chain model (source: Mind tools, 2014) The Value Chain theory distinguishes organizational activities to ‘primary and support ones’ (Needle 2010, p.275). The primary activities are those that have a key role in the creation of a competitive advantage; however, the success of these activities is not guaranteed unless they are followed by other activities, the support activities (Needle 2010, p.275, Figure 4). The above model though does not refer, at least not clearly, to knowledge; in practice, the effective management of knowledge has been proved as a critical requirement for the increase of organizational value (Almarabeh et al 2009, p.196). Najmaei and Sadeghinejad (2009, p.300) note that the in organizations successful management of knowledge can be achieved only through appropriate strategic alliances. This approach should be also used when applying the Porter’s Value Chain model: the primary and support activities of each organization should be supported by the stakeholders, so that delays and failures are avoided. Indeed, the Value Chain theory of Porter promotes the idea that the competitiveness of an organization can be threatened in case that the cooperation/ communication between the organization and its suppliers is poor (De Wit and Meyer 2008, p.375). Thus, the successful implementation of the Value Chain theory of Porter in an organization should be combined with: a) an effective knowledge management framework (Almarabeh et al 2009, p.196) and b) the close cooperation with stakeholders (Najmaei and Sadeghinejad 2009, p.300). At the same time, emphasis should be given not just to the structure/ elements of a firm’s primary and support activities but also to the flexibility of these activities (Hunt and Arnett 2004). For example, a firm that needs to secure its competitiveness has often to proceed to market segmentation, at least in regard to certain of its product/ services (Hunt and Arnett 2004, p.8). Using the Value Chain theory of Porter the activities of Sainsbury that can be considered as a source of competitive advantage would be the following: a) Primary Activities, such as: a1) Marketing & Sales; the firm has managed to keep its sales at high level by promoting equally all its departments; for example, emphasis is given not just to the grocery department of the firm but also to its general merchandise and clothing department (Sainsbury, Business Review, Compelling general merchandise and clothing); a2) Service; excellence in customer services is among the firm’s strategic goals (Sainsbury, Business Review, Our Strategy). In November 2013 the firm was nominated as the most Responsible Business for 2013; in November 2012 the organization received about 12 awards for the quality of its food; in 2011, September, was given an award for being the Best Supermarket of the year (Sainsbury Awards); b) Support Activities, such as: b1) Human Resources Management; the excellence of the firm’s HR strategies has been recognized by various organizations and the firm has been given several awards (Sainsbury Awards); b2) Technology Development; for example, the firm’s online ordering system is highly developed, securing a key part of the organization’s sales: it is estimated that the weekly online orders of the firm reach the 190,000 (Sainsbury, 2012 Annual Report, Complementary Channels and Services). Also, the firm has been the first in the retail industry that introduced the ‘Mobile Scan & Go Technology’ (Sainsbury, 2012 Annual Report, Complementary Channels and Services). In this context, technology, as used in various organizational activities, is a source of competitive advantage for Sainsbury. 2.4 Sustainability of the firm’s market share and market position In the context of the modern market firms in all industries are able to secure their competitiveness only if they are able to establish a learning system that ‘will be faster than the changes in the external environment’ (Kelliher and Reinl 2009, p.524). Williamson et al. (2013) note that the creation of a sustainable competitive advantage is related to the ability of a business to identify ‘a segment of the market which is not adequately served by competitors’ (Williamson et al. 2013, p.96). From a different point of view, Tilburg et al. (2013) claimed that a business can secure a competitive advantage when it meets all ethical requirements related to its operations; in other words, the sustainable competitive advantage is considered as depended on the alignment of business strategies with the rules of Corporate Social Responsibility, CSR (Tilburg et al. 2013, p.43). At the same time, Yannopoulos (2011) has noted that firms cannot easily face competition without employing ‘defensive and offensive strategies’ (p.1). The strategies of each category address different organizational needs, as made clear through the graphs in Figure 5 and Figure 5a. It should be noted that each firm can develop each strategy at different level depending on the pressures from competitors, the resources available and the organizational objectives. Figure 5 – Defensive strategies for securing competitiveness (Yannopoulos, p.2) Figure 5a – Offensive strategies required for increasing competitiveness (Yannopoulos, p.6) Sainsbury could secure its market share if it would be able to develop a strategy that could significantly enhance the value of the organization; this strategy could lead to a sustainable competitive advantage only if ‘it could not be duplicated by rivals’ (Henry 2011, p.144). In the context of the above literature, Sainsbury has managed to create a competitive advantage since the following terms have been met, as also explained analytically earlier: a) the firm has managed to keep its sales standardized despite the turbulences of the UK supermarket sector and the slowdown of the UK economy (Office for National statistics 2014, Gov UK 2013); b) the firm has fully aligned its practices with the rules of Corporate Social Responsibility; c) the firm has managed to identify a market segment the needs of which are not fully covered by existing firms; reference is made to the general merchandise products of high quality and at quite low price (Sainsbury, Organizational website, Developing new business); d) the firm has made clear that it emphasizes not on competition but rather on cooperation, a strategy that it is usually ‘more socially rewarding’ (Stucke 2013, p.7). In the above context, the firm’s existing market share and market position can be characterized as sustainable. 3. Conclusion The market share of Sainsbury is quite high, if taking into consideration the performance of other firms of the UK supermarket industry. However, competition in the particular industry is high. In order for Sainsbury to secure its market position and its market share emphasis should be given on the organization’s distinctive resources, such as financial resources/ capital, HR, reputation and technology. These resources have been related to the creation of competitive advantage for Sainsbury. Still, there are be certain issues that need to be addressed: should Sainsbury’s existing strategies, in regard to the management of the above resources, be changed/ updated and if yes then on which rules this process should be based? At the next level, particular reference should be made to the potentials of the firm to keep its competitiveness, as based on these resources. Despite the pressures on UK economy Sainsbury has managed to keep its market share, a fact denoting the strength of the organization even in a market in which the potential of customers to invest on products/ services of similar characteristics is significantly reduced compared to the past. References Acosta, P., Colomo-Palacios, R. and Loukis, E., 2011. “A review of the RBV of the firm within the e-Business literature: What’s next?” Interdisciplinary Journal of Research in Business, Vol 1, Issue 1, pp.45-52 Almarabeh, T., Abual, A., Alsharrab, S. and Jasassmeh, A., 2009. “Value Chain Model in Knowledge Management.” International Journal of Recent Trends in Engineering, Vol 2, No. 2, pp.196-198 Begemann, F., 2008. Co-Branding as a Brand Strategy – An Analysis from the Resource-based View. Norderstedt: GRIN Verlag Chapman, M., 2012. 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