Sainsbury’s PLC Strategic Management Analysis

Table of Content

• Introduction
• Environment Analysis
  • PESTEL analysis
  • SWOT analysis
• Application of Porter’s model (Five forces analysis)
• Internal analysis of strategic capability
• Mission Statement
• Significant change in strategy
• Success Criteria
• Reference

Introduction

Retail business in UK is as large as the economy of Switzerland. According to estimates there are more that 200,000 retail shops in UK. Retailing is a rapidly expanding and prospering business in UK. Retail outlets function as the end point for supply chains.

There are several kinds and types of retail stores in UK. They offer their services in different ways for the convenience of the consumers. They market their products in different shapes for attracting the consumers. Their nomenclature is also different according to the types of services they provide. It is possible to name these discount shops grocery stores, malls, superstores, etc.

This supermarket shops are also part of a wide range of franchises which have stores all over the world. These shops are very popular in the UK. People have faith in their labels and prefer them over other brands.

In British supermarket industries, Sainsbury’s is a symbolic brand. There are many things that make it perfect, its powerful labels, love for cooking, its tradition of ingenuity and a trustworthy moral approach to company. Both of these things make it a UK household brand.

J Sainsburys plc manages different forms of firms. Their interests vary from Sainsbury’s shops, grocery shops, Sainsbury’s Bank and a home shopping service. In this article, by utilising different models and strategies, the external and internal climate, strengths and limitations of this great organisation would be studied.

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Environmental Analysis (External Factors)

Various templates and methods are used for the study of every organization’s external climate. To evaluate external factors impacting the company’s results, the PESTEL model would be used here.

PESTEL Analysis

In reality, PESTEL is an abbreviation for evaluating political economic, social, technical, environmental and legal influences. In order to formulate a right and successful approach, a simple image can be obtained by evaluating all these very significant external variables that influence the success of every organisation. This review provides a summary of the numerous variables that the organisation needs to take into account.

It is necessary to consider certain minor sub-factors that are dominant factors for a specific industry for a thorough PESTEL study. For a business like Sainsbury’s plc, these prevailing aspects are market size, scope of economic competition, market development rate, number of competitors and their relative sizes, etc. Awareness of these external variables is important because of the consequences they have for the successful approach that is emerging.

In Britain, Sainsbury’s plc is one of the best and most trusted brands. It has a vast chain of stores all over the world, and the firm earns more than 10% of market share according to recent estimates. There are also such major brands, such as Morrisons, Asda, and Safeway. This are the best-known firms in Britain and Sainsbury’s must deal with them in Britain’s rising store. For the last few years the organisation has been under strain and even experienced the first loss of its 135-year existence. Below are some of the key triggers of weaker results.

Political and Economic Factors

• Globalization has had a significant influence on its results. Major retailers such as Wal-Mart have invaded the British business and have influenced the company’s profits.
• In its stores, Sainsbury’s sells about 30,000 products; approximately 50 percent of which are their own names. Because of weak economic practises, it was hard for them to achieve favourable output and market parity.
• Losses was tracked as their average success was also influenced in Egypt.

Social, Technological, Environmental and Legal Factors

• There was lack of appeal to customers in comparison to other competitors. The advertisement policy was very weak and outdated thus diverting the customers to other competitors.
• Prices seemed on higher side as company did not made its brands attractive and appealing by using aggressive advertisement campaigns.
• In the newspapers, there have been misleading storeys about the working conditions in the stores and warehouses. It also harmed the image of Sainsbury’s in eyes of customers
• Incident of death of an engineer in the warehouse of the company had a very negative impact on the image of company. Company was fined pounds 425,000 because of safety breaches that l led to the death of Mr Maurice Dinsey, aged 46, from Brighton Hill.
• There was no innovation in the company policies that led to the stagnation and decline in company performance.

The above stated factors give just a glimpse of problems being faced by company. Company was under tremendous pressure as stated by the company’s Chairman Philip Hampton says that company is facing high profile problems. But the policies of new management have initiated the process of recovery.

SWOT Analysis

PESTEL analysis helps in evaluating limited areas. It is important to employ SWOT analysis model for comprehensive evaluation. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. It broadens the perspective and gives the complete picture. Like all other organizations Sainsbury’s has also:

1. Some strengths to depend upon.
2. Certain weaknesses to overcome.
3. Certain opportunities to be utilized.
4. Certain threats to be careful of.

Strengths

• Sainsbury’s is one of the largest supermarket chain in UK with serving over 14 million customers a week.
• Company has one of most extensive chain of outlets with 727 stores throughout the UK.
• Company enjoys the services of a large workforce of almost 150,000 workers.
• Company enjoys the trust of its consumer; the name of company is trusted for quality products.
• One of the big three firms is known to be supermarket retailers in UK.

Weaknesses

• There has been a decline in the performance of the company for last few years.
• Because of some traditional policies and poor strategies company was facing problems in the form decline in the trust of consumers and consequently reduction in sales.
• Corporate structure was quite complicated and thus affected the performance adversely.
• The poor management policies also raised concerns in the minds of workers. For example the proposed rosters compelled most colleagues working every weekend and until 3am,

Opportunities

• Like other international retail groups there were new opportunities for growth, because of the maturity of markets in the UK, and the Middle East offered some attractive opportunities.
• Sainsbury’s also took this opportunity and entered the market of Egypt with great expectation but due some political and economical factors it proved a failed attempt thus opportunity was not fully utilized.
• There are more opportunities of expansion in local market if they acted according to strategies.
• The new management has employed some useful techniques to fully utilize the available opportunities in local market. These techniques will be discussed in later part of the paper.

Threats

• Moving into the Middle East market was associated with both commercial and political risks.
• The company experience in Egypt can be easily termed as disastrous.
• Aggressive and innovative competitors pose great threat in local market.
• Decline profit margins and cuts in dividends can harm the company image in share markets.

Application of Porter’s Model (Five Forces Analysis)

Harvard professor Michael Porter’s Five Factors Model is used to examine the effect of the market’s key motivating forces. The market forces that have major impact on the structure of the retail industry can be analyzed by determining the following factors in the light of Porters five forces model. These factors are:

i) The competitiveness among the industry’s competitive sellers (The Rivals).

ii) Business efforts by firms in other sectors to draw consumers to their own substitute products (The Substitutes).

iii) The potential entry of new competitors (The new entrants).

iv) The bargaining power and leverage of inputs suppliers (The Suppliers).

v) The purchasing force and influence that purchasers will exercise (The Consumers).

This model is a powerful tool for systematically diagnosing the chief competitive pressures in a market and assessing how strong and important each one is. Not only is this model the most widely used technique of competition analysis, but it is also relatively easy to understand and apply. From a qualitative evaluation the prospect of industry profits is assessed.

i) The Rivalry Among Competing Sellers in the Industry (The Rivals).

The retail sector UK is very competitive. There are many powerful players to compete like Asda-Wal-Mart, J Sainsbury’s, Tesco and Wm Morrisons. These four major groups dominate the market. The market is of great importance because it plays a vital role in supply of food products. These giants have virtually marginalized the small groups and independent shopkeepers. Sainsbury’s is although quite strong player but it has been facing tough challenges from its competitors. It has been trying to cope with the competitors by innovation and by adopting new and effective strategies.

ii) The Market Attempts of Companies in Other Industries to Win Customers Over to their Own Substitute Products (The Substitutes).

The large companies like Sainsbury’s are focusing on enhancing their efficiencies by assuring the timely supply of products and also by employing new techniques to attract the consumers. The company is  making improvements  in its methods of functioning. They are focusing the quality and as well as price of their products. They are trying hard provide good quality products on fair prices. They have also launched aggressive marketing campaign. Sainsbury’s is trying hard to face this market force called substitutes.

iii) The Potential Entry of New Competitors (The New Entrants).

As stated earlier globalization is a major force in multi-national markets. New multi-national companies are entering in the market and are quite successful in taking market share from local groups and companies. Example of Asda indicates that Sainsbury’s was and other UK companies were affected by this threat of new entrants. Sainsbury’s is trying hard to re-emerge and it has been somewhat successful in its attempts recently.

iv) The Bargaining Power and Leverage of Inputs Suppliers (The Suppliers).

Sainsbury’s is have some advantage while coping with this force the suppliers. More than 50% products sold by them are their own brands and they mostly prepared locally. So they can take advantage of this point and they have started doing that.

v) The Purchasing Force and Influence that Consumers Will Wield (The Consumers).

The consumers can play a major role in controlling the market forces if they know their rights and if they are united to use the leverage they have got in their own favor. Sainsbury’s enjoyed the trust of consumers because of its traditional quality and fair prices. There was some lapse in this  trust but now the new management is trying hard to regain and enhance the trust and loyalty of consumers.

After going through variety of data available on the web page  of Sainsbury’s and other sources it can be concluded that role of consumers is vital for getting good profits. Any company that takes care consumers well can sail smoothly without the danger any type upheavals. Sainsbury’s have rediscovered this truth that appeal to customers is the key to success. They have taken various steps to get the loyalties of consumers in their favor. They are trying hard to attract the consumer by taking various positive measures. They are offering new packages, they are cutting prices and improving quality and more importantly reaching consumers by advertising campaign.

Internal Analysis of Strategic Capability

Sainsbury’s was facing various internal problems. They faced first loss in their history last year. They were facing difficulties in managing the board efficiently. They decided to bring more changes, from the top of the organisation to the bottom. They took tough decisions for re-organization of the company. They made further job cuts even many board member had to leave. There were also reduction in dividends. These reduction further declined the competitive position of Sainsbury’s.

The new chairman and management have taken steps to halt and even reverse the situation. The major steps taken by company to improve the state of affairs are summarized below.

• The dividends were recalculated to a realistic level.
• The company has inducted more workers to reduce the customer’s complaints regarding non-availability of products and also about the quality of product as well.
• Every worker from board members to ordinary workers have taken responsibility to perform well for changing the degrading position of the company.
• The management and workforce has been overhauled for the better prospects.
• Idle Board has been replaced by professional Board
• There is new commitment to traditional values and ethical approach of the company.
• Board is now working more vigorously for the interests of shareholders.
• The leadership has provided a clear-cut guideline for sales-led recovery.
• Company is striving hard to reduce the costs and improve the cash flow.
• A comprehensive incentive policy has been adopted to reward the hard work and penalize idleness.
• A policy of teamwork is evolved to tie the whole work force as a family.

Mission Statement

There is no explicit mission statement given on the web site of the company or in the review reports but certain objectives and priorities are described in the statements of Chairman and others.

Corporate Responsibility

The corporate responsibility is clearly stated and highlighted. The management accepts this fact that they have to work with responsibility to take care of the interests of the shareholders and other stakeholders.

Objectives and Priorities

The objectives and priorities are also clearly stated, these statements can be considered as mission statements. According to Chairman Philip Hampton it is the first objective of management to strive for re-gaining the lost position of the company despite high profile problems. The chairman believes that the current problems being faced by the company can be contained by taking appropriate measures. For improving the state of affairs management is ready to take extra-ordinary steps for bringing change. The management believes in bringing change for good results by employing recognized techniques. Management is also ready to take tough decisions for revamping the whole setup of company. In this regard they have even not spared the Board members. The company’s policy statement says that although it is difficult task but they are ready to take calculated risks for reversing the decline in company’s performance.

The firm specialises in strong corporate governance in order to regain the lost reputation. Justin King CEO has also expressed his firm belief that company can only move forward by re-organizing and  strengthening operational management. He believes that they should start the change from boardroom.

Significant Change in Strategy

A good competitive strategy boosts performance and reputation of the company. The new management has been reviewing the whole policies and performances of the company and is planning to bring a comprehensive change in the strategy. The major changes in the strategy of company can be described as:

1. A new management incentive scheme is launched to enhance the performance of the company. It is completely new phenomenon in company. It also warns that there would be no payments in case of failure. It can be described as major shift in the strategy.
2. There are other minor changes in operational strategies. More workers are inducted in retail outlets and warehouses for better and swift output.
3. Company is also trying to re-adopt the policy of fair pricing with promise to supply quality products.

Success Criteria – Suitability, Acceptability and Feasibility

It is the responsibility of planners to identify success criteria that may be used to develop goals, objectives. It is acknowledged that there are many fundamental types of commercial success standards that may be used to set goals and objectives: financial and competitive. A method using suitability, acceptability and feasibility as criteria is used here for assessing the success of company.

Suitability

According to this criteria company’s strategy seems to address circumstances in which organisation is functioning.  The strategy of company is also seems to be linked to strategic position and its new strategies also fit the competitive environment of the company.

Acceptability

The strategies of company seems acceptable to all the staff members and other stakeholders as there is a visible positive change in the performance of the company. It was claimed that the bulk of the the strategies were quite acceptable for all stakeholders. Company is successful in enhancing its market share.

 Feasibility

The strategy of the company proved quite feasible in every aspect. The company needed such type of changes that could stimulate and stir the whole work force including board members. It seems that these changes have brought company on right track and the performance will further improve with the passage of time.

It is stated on the company’s web page that they are trying to provide great products at fair prices and their objective is simple; to serve customers well. They also claim that they continuously try to improve and develop their product ranges and work hard to give customers an ever improving shopping experience.

Acknowledgement

It is hereby acknowledged that information has been taken from the website of .j-sainsbury for writing this paper.www.j-sainsbury.co.uk.

References

• Ansoff, H. I. (1988). The New Corporate Strategy. New York: Wiley, pp. 26, 41, 44, 49, 50, 53, 106, 118, 130, 146, 154, 157.
• De ChÂtel, F., & Hunt, R. (2003). Retailisation: The Here, There and Everywhere of Retail. London: Europa.
• Dennis, C., Fenech, T., & Merrilees, B. (2004). E-Retailing. New York: Routledge.
• Kay, J. A. (1995). Foundations of Corporate Success: How Business Strategies Add Value. Oxford: Oxford University Press.
• Kelly, A. (Ed.). (2003). Decision Making Using Game Theory: An Introduction for Managers. New York: Cambridge University Press.
• Kaplan, R. and Norton, D. (1996), The Strategy-Focused Organisation: How Balanced Scorecard Companies Thrive in the New Business Environment. Boston: Harvard Business School Press.
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• Porter, M. E. (1982), Competitive Strategy, Free Press.
• Theaker, A. (2004). The Public Relations Handbook. New York: Routledge.

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