Strategic Analysis of Sainsbury

Strategic Analysis of Sainsbury
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Introduction
Sainsbury was established in 1869 and is one of the leading supermarket chains in the UK. Sainsbury's 2017 operating income stood at £1128 and was realized from revenues amounting to £639 million. Since the inception of the supermarket, it introduced the self-service strategy to shopping in UK supermarkets, an approach that enhanced its position in the industry since 1991, before a near collapse (Emerson, 2006). The strategic plan of Sainsbury faces many challenges that need mitigation to enhance efficiency. (Frenie, Fernie& Moore, 2015). This paper represents a strategic analysis of the environment of Sainsbury.
Competition
Sainsbury's 2017 operating income stood at £1128 and was realized from revenues amounting to £639 million. This indicates that the company is competitive in the industry. Tesco realized a net income amounting to £5.766 billion during that time, hence showing the great competition it offers Sainsbury. The different investments that the company engages in have also boosted its operations by minimizing risks since it rebranded in 2003 (Barratt, 2015).
Financial KPI of Sainsbury Supermarkets
However, when Sainsbury first entered the market, it failed to establish strategies and ideas that would assert its number one position and fell to number two to Tesco in 1995 and later fell number three after ASDA took the second place. Lack of creativity in branding affected its growth. Moreover, unlike Tesco that has stores in the UK and across Asia, Sainsbury has been reluctant to expand. (Barratt, 2015).
Chart1: Financial Results of Sainsbury from 2010 to 2018
The supermarket industry in the UK has been one of the most vibrant sectors in the country. In the past years, the market share performed well and saw significant revenue returns. For instance, the operating income for Sainsbury that was released in the year 2015 indicated £81 million that resulted in revenue of £23,775 million. This is a show of the supermarket's competitiveness in the country. Nevertheless, Tesco's net-income stood at £5.766 billion at the same time, hence showing the great competition it offers to Sainsbury, indicating that the supermarket chain is doing well in the UK retail industry Stanley, n.y).
However, during the Coronavirus pandemic, formerly small supermarket chains like Symbols, Ocado and Independents, and other chains increased their market share. But ASDA was hard hit by the financial crunch caused by the pandemic and lost almost all of its market from March to May 2020. Sainsbury and Tesco still hold the largest market share despite the Coronavirus financial crunch, holding 42.7% of the market share as of December 2020. In 2019 March, ASDA's shares surpassed those of Sainsbury, which was able to regain the second position in the market share in the following months (Dunkovic, 2019). But to counter this, Sainsbury led the big four supermarket chains in offering discounts for products, hence giving them an edge over the other competitors.
Chart 2: Supermarkets Return On Capital Employed from 2007 to 2016
On the backdrop of the growing inflation and after-Brexit uncertainty, consumer behavior has had a shift to cheaper supermarket alternatives like Lidl and Aldi. The resultant price wars have caused supermarkets to lower their prices. This has led to increases in grocery supermarket retails markets volatility since January 2017 (Kanakaratne, Bray & Robson, 2020). Aldi has overtaken the Cooperative to become the fifth largest supermarket in the United Kingdom. After the period of intense market competition, while Sainsbury, Tesco, ASDA, and Morrisons remain to be the market leaders, Lidl has overtaken Waitrose and may as well overtake Cooperative.
Company Profile
Sainsbury was established in 1869 and is the second-largest supermarket chain in the UK. The company owns 16.0% of the supermarket market share in the UK (Collins, 1993). The company was founded by John James Sainsbury. Started as a shop in Drury Lane, London, by 1922, the company grew to be the largest grocery retailer. In 1995, Sainsbury's greatest rival,Tesco, overtook it to become UK's supermarket leader, while in 2003, ASDA became the second largest(Seaton& Waterson, 2013: Kantar, 2018), displacing Sainsbury to third place in the subsequent years until January 2014 when it regained the second place position. While awaiting its merger with ASDA, Sainsbury was displaced to position three again as the rival placed second.
The holding outfit J Sainsbury is divided into three divisions: Sainsbury Supermarket Ltd, Sainsbury Argos, and Sainsbury's bank, with the holding's head office or Sainsbury Support Centre being located in London City in Holborn Circus.
By 2018 February, the largest company shareholder became the Qatar-based Qatar Investment authority and sovereign wealth fundthat hold 21.99% of the company. The company is a constituent of the FTSE 100 index and is listed on the London Stock exchange (Anesbury et al., 2020).
In 2018 April, Asda and Sainsbury announced their merging intention, but on April 25, 2019, the Competition and Markets Authority announced the decline of the merger due to the increase in consumer prices (Anesbury et al., 2020). The split of the merger threw Sainsbury to 3rd position in the market share ranking, while the second position was taken by ASDA and first position Tesco (Worldpanel, 2018).
Chart 3: Supermarket Share after the Split of Sainsbury-Asda Merger
Organizational purpose
The purpose of the organization is "Live well for less". Through this purpose, the company opines that their services are about getting customers the most out of life, regardless of the amount of time and money that they may have. This the company does by granting customers affordable access to products they need: like quality clothes, healthy foods, the latest technology, stylish homewares, and more ways to use and manage their money (Rohwer& Topic, 2019).
The company also states that it strives to be sustainable so that it can help people live well today and tomorrow. The company states that it offers quality, distinct, quality, and cost-competitive food prices, general merchandisers, financial and clothing services. Driving efficiency in the day-to-day operations of the company enables it to invest in the customer offers in areas that they value.
Internal analysis of Sainsbury
Sainsbury operates both physical and online stores across the UK and has an estimate of 161,000 employees who have managed the company to deliver services and products to its customers (Karim, Huda & Khan, 2012). Some of the competitor companies that influence the company's internal operations include ASDA and Tesco.
Sainsbury's 2017 operating income stood at £1128 and was realized from revenues amounting to £639 million. This indicates that the company is competitive in the industry. Tesco realized a net income amounting to £5.766 billion during that time, hence showing the great competition it offers Sainsbury. The different investments that the company engages in have also boosted its operations by minimizing risks since it rebranded in 2003 (Barratt, 2015).
The company focuses on creating formidable leadership credentials that ensure the implementation of strategies. Justin King created effective leadership that pushed the company before he resigned in 2004. Due to the long-term success attained by the strategies created by King, the company believes in effective leadership (Adams, 2015).
However, when Sainsbury first entered the market, it failed to establish strategies and ideas that would assert its number one position and fell to number two to Tesco in 1995 and later fell number three after ASDA took the second place. Lack of creativity in branding affected its growth. Moreover, unlike Tesco that has stores in the UK and across Asia, Sainsbury has been reluctant to expand. (Barratt, 2015).
The key stakeholders that have been affected by operations at Sainsbury include the surrounding communities, suppliers, shareholders, and customers. So far, shareholders are impressed by the company's gains.
External Analysis of Sainsbury
This analysis looks into the external environment that influences Sainsbury's performance in the UK retail industry. Numerous macroeconomic factors need assessment to assess the extent to which they encourage or hinder Sainsbury's growth. In line with such, the utilization of Porter's five forces and PESTLE to aid the analysis of Sainsbury's external environment.
Analysis of Porters Five Forces
Established by Michael Porters, it covers aspects like buyer power, the threat of substitutes, entry barriers, and competitor rivalry.
Competitor Rivalry
Three dominating retail players in the UK market include ASDA, Sainsbury, and Tesco. The market share size of 16% gained by Sainsbury shows the level of competitiveness that Tesco that accounts for 28.4% of the market share, exerts in the retail industry (Worldpanel, 2018). Notably, Asda and Tesco have focused on value and pricing besides the deliverable services. Moreover, the two main competitors have engaged in programs to widen their operational scope by opening new store branches, thereby posing a competition threat to Sainsbury.
Chart 3: Market Share of UK Supermarkets
Barriers to Entry
Entry into the UK food retail market is usually characterized by several barriers. The sector has the most established companies hence new entrants need to invest massively to break through the market.Due to the high amount of capital needed while entering the reta...