SAINSBURY is one of the leading food retailers in UK. It is a public limited company and is registered with LSE and FTSE 100. The company is the oldest food chain retailers in UK being established in 1869 by J.J Sainsbury. At present the company owns around 800 stores including supermarkets and convenience stores.
The company is the third largest food-retailer in UK and has a share of around 16.3 percent of the total market. The company after leading the UK food retail market for decades faced a downfall during the 1990’s. At present, the company is trying to retrieve its position in the UK market and expand its global market share.
In this report, an attempt has been made to analyse the different business strategies used by the company at different times and to compare its strategies to that of its competitor’s in order to assess the effectiveness.
The first section of this report deals with the company profile of Sainsbury’s and a recap of its early establishment. This will help in understanding the activities of the business and the business strategies adapted by it.
The second section analyses the different strategies adapted by the company.
The third section deals with the competitors of Sainsbury’s i.e. Tesco and Asda and a short analysis of the strategies adapted by them.
And finally, the report has been concluded in line with the different activities carried on by Sainsbury’s and the strategies that should be followed by it in order to be more competitive.
REPORT ON BUSINESS ANALYISIS
In this report, an analysis of the business strategy of an organisation is required to be carried out. Business strategy refers to the various activities carried out by an organisation at different stages of its growth and expansion plan. (Tayeb, M. 2000) All the stages of a business growth commencing from the start up involves some type of business strategies. A business strategy can be defined as a long term plan designed to attain a specific organisational goal. The strategy acts as a guide for the business to reach its target. A successful business strategy will design and plan all the activities to be or required to be carried out in order to reach the organisational goal successfully. (Source: Rapid Business Intelligence Success; http://www.rapid-business-intelligence-success.com/definition-of-business-strategy.html, Accessed on 23.05.2010; 16:15hrs).
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Therefore, from the above discussion on business strategy it can be concluded that a business strategy plans the growth of a business and describes the pathway for attaining it. Business strategy involves analysis of various factors involved with the organisation (i.e. external and internal organisational environment, market size, organisational structure, economy of the market, local and regional economy, target customer, income of the local people, customer preference, socio-cultural issues etc.). All these factors help in forming a business strategy suitable for an organisational.
A business organisation aiming at growth, expansion and value creation is an outcome of the vision of an entrepreneur. Once the entrepreneur locates the opportunity in a society, he/she tries to implement some innovative ideas in order to exploit that opportunity and gain profit. The process relating to the implementation of the innovative idea and bringing the opportunity into reality is termed as business. (Kuratko, 2009)
A business plan is required in order to bring the business into reality. Similarly, a business strategy is required for attaining the business goal. The strategy gets involved from the beginning of a business i.e. early start-up. But the strategy involved in the different stages of organisational growth will be distinct from the other. The following diagram will help us in further understanding the different business strategies involved in different stages of organisational growth.
(Adapted from: HIT; Business, organisation and information architecture; http://www.hit.nl/Product_BusinessStrategy.asp)
In this report, I am going to analyse the various business strategies of Sainsbury’s and have made an attempt to compare those strategies with that of Tesco and Asda, the two famous competitors of Sainsbury’s.
I have chosen Sainsbury’s, Tesco and Asda for this report. An attempt has been made to analyse and compare the different strategies adapted by these companies. All the organisation’s dealt with in this report are multinationals based in UK and are continuously growing. Moreover, Sainsbury has been selected because of its diversified ownership structure, different strategies adapted by it in the recent days which have helped it to gain its market share and increase its profitability besides being a sluggish growth in the economy and the main reason being its history.
COMPANY PROFILE:
SAINSBURY’S is a public limited company registered in the London Stock Exchange and FTSE 100. It is one of the leading UK food retailers and had been part of the financial and property sector. The retail food chain is the main business accounting for the major turnover of the company. Sainsbury’s group employs more than 145,000 people and therefore, is one of the major players of the economy. Sainsbury’s its known for its quality and service besides its price.
Sainsbury’s success can be traced back in 1869 when the company was founded by J. J Sainsbury. It started with the aim of providing its customers the ‘best butter in the world’ at an affordable price. Sainsbury’s started with the fresh foods and later enter the market for packaged food products. It mainly focused on the dairy products, however, it was the first retail food chain to improvise, petrol stations, fresh food and poultry counter in their retail stores. Since inception, Sainsbury’s tried to aim at providing best quality at low prices. At present Sainsbury’s retail food chain consists of more than 800 stores including supermarkets and convenience stores. It started its journey from London and is now spread all over UK with stores in Scotland, Ireland, Belfast and North east United States. Sainsbury’s used to be the largest grocery chain in UK till 1995 whereby, Tesco overtook the first position and Asda became the second largest chain in 2003.
The company started its activities in 1869 as a business owned and operated by the Sainsbury family. It carried on its culture till 12 July, 1973, when the organisation became public. However, the major shareholding of 85% was with the family and therefore, after becoming public also, the organisation carried on its legacy and the traits of a family business. But, the company started facing some managerial issues with the new management in 1993 and since then, the family has divested their ownership. At present, Qatar Holding LLC, a wholly owned subsidiary of Qatar Investment Authority is the major stakeholder owning around 26 percent of the company’s share. (Sainsbury’s Corporate Website; http://www.j-sainsbury.co.uk/index.asp?pageid=229, Accessed on: 25.05.10, 10:15hrs)
Sainsbury’s was among the first few organisations, which hired women employees during the World War, since most of their male employees had to b there in the war front. They develop a separate and exclusive training programme for their women employees who will help them work effectively in this new environment.
Though, Sainsbury’s has lost their position of being the market leaders but still it is one of the biggest names in UK food retail chain and moreover, in the recent years it has achieved a remarkable growth.
ANALYSIS OF THE DIFFERENT STRATEGIES
The business strategies as discussed before, is an inseparable part of a business and is linked with all the activities of a business organisation. The companies adapt several strategies for the start-ups, entering a new market, growth strategy, marketing strategy.
COMPETITIVE STRATEGIES
Sainsbury’s started its journey as a grocery chain aiming at producing quality goods at affordable price. The organisation’s aim of producing “quality goods at affordable prices” can be treated as its market entry strategy. On further analysis of this strategy, it has been noted that its market entry strategy possess the qualities of a low-pricing strategy.
Low-pricing strategy is an integral part of the business-level strategy. It helps the organisation enjoy a competitive advantage over its competitors. Low-pricing strategy aims at producing quality goods but at lower prices than offered by its competitors. It is mainly followed in a competitive commodity market where the products are more or less similar. The low-pricing strategy leads to lower profit margin and therefore, it is not adapted by all the organisations. The business has to be confident about the product and service offered by it. Moreover, has to develop a cost structure which will help the business sustain in this low price strategy. Low prices and lower product quality is something normal, and thus can easily be followed by the competitors. However, producing similar quality goods at a lower price is a challenge as it requires a developed cost structure. Moreover, the cost structure has to be developed in such a way that the competitors cannot easily follow it.
Therefore, the key challenge lies in structuring the cost in a manner that will help the organisation to enjoy a sustainable advantage following the low pricing strategy. In regard to this scenario, Sainsbury’s has developed a unique cost structure by developing close relationships with its suppliers and by irradiating the agents in between. Both these policies helped the organisation enjoy a cost advantage over their competitors. Moreover, the company’s manufacturing and packaging cost are developed in a way to keep the product cost lower than its competitors. The company being the market leader also enjoyed the volume of the quantity produced and thus, enjoy the economies of scale. (Johnson, G., 2002)
Low-pricing strategy adapted by Sainsbury’s helped the organisation to become the market leader whereas, its in-house product variants helped it to develop a wide market and attract customers from all the strata of society.
The product variants are the result of the product differentiation policy adapted by the company. Sainsbury’s has a varied chain of in-house products. Moreover, it has also differentiated its in-house products and brands in such a way that it can reach all the segments of the market, this strategy helps Sainsbury’s to capture a large share of the household market. Sainsbury’s differentiation strategy helped it to come up with different lines of similar products. The differentiation was done on the basis of the cost and the product quality.
The product differentiation was done in several stages. The company came up with a basic product line followed by superior quality products. The basic line of product is cost effective but maintains the quality. With the higher line of product the company brought in higher variants of similar by adding value to it. The higher variants not only has added value in respect of the quality of the product, but also the product packaging and marketing. For the basics, Sainsbury’s has adapted minimalistic packaging cost and marketing structure.
The differentiation strategy is really important for an organisation aiming at growing its market share. The differentiation strategy helps the organisation to provide products and services different from those offered by its competitors in terms of quality, uniqueness and value addition. The differentiation strategy helps the organisation to increases its market share and thus enabling it to enjoy a cost advantage. Therefore, cost function can be termed as a function of product differentiation. (Johnson, G. et. al, 2002)
Sainsbury’s product differentiation has enabled it to gain a major market share of the lower and the middle income group. It has introduced product differentiation in all the product lines offered by it, may it be, dairy products, meat and poultry products, fresh and packaged vegetables and fruits, spices, household products etc.
For e.g. The oatmeals and cornflakes comes in several variants. The range of basic oatmeals and cornflakes range between 48 pence and 64 pence whereas the higher end product variants of the similar line range between 150 – 190 pence.
The above example, helps us to understand not only the product variants and product differentiation but also that the company follows a focused differentiation strategy. In order, to aim the higher strata of the society, the company came up with products with better packaging, added quality and thus adding on to the value of the products. Moreover, the higher variants not only come up with added quality but also innovative products which them to differentiate from the similar kind of products offered by its competitors.
For e.g. – Sainsbury’s raisin-filled oatmeals, raspberry-filled oatmeals differentiate its products from the other competitors
The company with its own differentiated line of products comes up with several other products offered by leading retailers and therefore, gives its customers a varied choice of products. The varied products attract customer base and thus enabling it to increase the market share.
In addition, the company has incorporated several innovative ideas in its supermarket model like petrol stations, fresh bakery items, fresh meat, cooked meat and fish selling counters which makes them different from its competitors. This idea has not only differentiated them from their competitors but as helped them to act according to their value of providing healthy and quality foods.
The different competitive and strategies in order to be competitive and gain the market share has enabled it form a hybrid strategy comprising of the main elements of low pricing, differentiation and focussed differentiation strategy. All these strategies merged together helped the business grow at a faster pace.
LOCATIONAL & STRUCTURAL STRATEGIES
Since early period, Sainsbury’s built in the concept of departmentalisation in its stores. Its early food stores were divided into 6 departments, dairy products, ham and bacon, poultry and game, fresh meats, cooked meat and groceries. It was an unique concept at the 1900’s which shows its innovative thinking from its inception. The use of mosaic floors, marbled topped counters, uniformed staffs, white tiles background not only enabled to have a comprehensive and similar looks through the stores but also shows their innovativeness and capability of thinking ahead than others.(The Sainsbury Archive; Accessed on 25.05.2010; The Design Journal 1966.
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Further, a company’s store location plays an important role in its business. In the case of Sainsbury’s, it has always chosen a central position in the parade for a larger display and better connectivity to overcome the constraints relating to limited vehicles for home delivery. It was the first retail store chain to bring in home delivery service in UK. All these strategies helped the business to grow and become a pioneer in its field. The organisation also pioneered in the self service supermarket in UK between 1950’s and 1960’s. All these add up to the locational and structural strategies adapted by the company since its inception to be a market leader.
ORGNISATIONAL STRUCTURAL STRATEGY
The organisational upbringing of Sainsbury’s has been pretty different from that of its competitor e.g. Tesco. Unlike, Tesco, Sainsbury’s relied on the family mode of business. The company went public in 1973; however, the major shareholding has always been within the family till 1990’s when the major shareholdings by the family were divested following a strategic downfall.
Unlike Tesco, which was mostly depended on the market wealth and capital generated from the equity market for its expansion and growth, Sainsbury mainly focussed at the inner source of capital and reserves for its expansion.
Following the diversification of the shareholdings in 1995, the major share holding is with QIA, a foreign investment company.
The company’s early strategy of not involving market equity capital has helped the organisation to maintain cohesiveness in the organisational activities and has enabled the initial growth and expansion.
Employee – employer relationshiphas always been an advantage for the company. The company has always given preference to the organisational and personal requirements of its employees. The employee policy designed by the organisation has helped it in its success. It is rated as one of the leading recruiter’s of UK at present. It has a very large yet strong organisational base which has evolved with time. The organisational structure of the company has always been subjected to a change. The hierarchal set-up during the early stages evolved into a much flatter organisational set up with time and changing society. This proves the adaptive strategy followed by the company.
Supplier – retailer policyadapted by Sainsbury’s since its inception, has helped the organisation to enjoy a lower cost and better quality. The supplier management strategy is very essential for a growing transnational organisation like Sainsbury. The company has always aimed at maintaining a good relationship with supplier, thus enabling them to be a market leader. However, the company’s downfall during the early 1990’s has been an effect of a major relationship difference between the reailer and supplier. Building up a supplier-retailer relationship and maintaining it is the role of a successful organisation.
STORE FORMATS
The company adapted the hyper-market policy during the early 1970’s following its competitors. The company operated this format of stores through bigger outlets (over 45000 sq.ft ) and varied range of products under the brand Sainsbury Savacentre. But, later it got incorporated into the main channel being a part of the integrated sales and back office operations unlike, Tesco. The product distribution followed the policy of equal distribution between groceries and non-food items as followed by Tesco.
The supermarket (average of 34000 sq.ft) the hypermarket store format only differ in the size and the quantity of product variants offered by the two types of stores.
The company also followed the concept of convenience stores followed by the other food retailers like Tesco, The Cooperative store, etc. This store format is also be termed as local store and is meant for a local market, much smaller in size (between 2000-6000 sq.ft) with limited variants offering top-ups and go and grab deals. Asda, did not follow the concept of convenience stores.
The store formats helped us analysing the customer serving strategy and the customer base of the organisation.
FRANCHISING
Unlike its competitors, Sainsbury’s does not involve franchising. Tesco recently has planned to go for a franchising in order to enter further into this multi-billion dollar market of retail groceries. Its considering the franchising scope followed the step taken by its French competitor Carrefour.
Franchising will help Sainsbury to reach a broader customer base and reach further corners which is no possible through direct acquisitions and mergers. Further, acquisitions involve managerial constraints which can be easily avoided in case of franchising.
MERGER & ACQUISITION
In line to the discussion Mergers and acquisitions it can be rightly pointed out that the company is rightly catching up the growing model of business UK and worldwide. Its acquisitions of Bell supermarkets which operate in north east England and a merger with Shell stations will help it to grow the number of convenience stores and petrol stations in UK. (Food & Drink Europe.com http://www.foodanddrinkeurope.com/Retail/Sainsbury-s-image-takes-another-knock).
The company went for a merger with Shaws Supermarket Inc. a leading super-market chain in U.S and later acquires the company accompanied by its acquisition of Star Markets. These acquisitions have helped Sainsbury’s to control competition in the foreign market.
However, a detailed analysis has pointed out that the business acquisition decisions and deals have not been of much success and therefore, affecting its worldwide turnover.
OTHER MODES OF OPERATION
Sainsbury has started providing financial services through Sainsbury Bank which is joint venture between Sainsbury and Lloyds Banks. Its property management team is helping its property management business to reach new heights. The company has started diversifying its portfolio and its activities bt it will take time in attaining the aimed success.
COMPETITORS
Sainsbury is the UK’s third largest food retail chain trailing behind Tesco and Asda.
TESCO, the leading retail food chain has started its operation since 1919 as a surplus grocery store in East End of England under Jack Cohen. The first TESCO store came into existence in 929 after being a limited company in 1924. Tesco’s growth was mainly through acquisitions along with organic growth. During early 1970’s TESCO group owns around 700 stores nationwide.
Tesco was the pioneer in offering the customer’s several facilities like customer rewards and club points which were previously unheard of. It introduced in internet shopping for the customers that help in growing the business and building up its brand image among its customers. During 1980’s and 1990’s it went through couple of successful takeovers including that of William low, a Dundee based firm competing with Sainsbury. In 1997, Tesco also went into a business alliance with esso in order to get a lease of its several petrol filling stations.
In July 2001 Tesco became involved in Internet grocery retailing in the USA when it obtained a 35% stake in GroceryWorks.In 2002 Tesco purchased 13 HIT hypermarkets in Poland. It also made a major move into the UK convenience store market with its purchase of T & S Stores, the owner of 870 convenience stores in theOne Stop, Dillons and Day & Nite chains.
At present, Tesco is leading the UK retail food chain though its 27 hypermarkets all over UK. Tesco and Sainsbury growth structure mainly differs. Tesco has mainly focused on the growth through takeovers, acquisitions and mergers on the other hand; Sainsbury’s growth was mainly based on organic growth.
Growth through takeovers, acquisitions and mergers has helped Tesco to gain better and more market knowledge, technological knowledge and management knowledge. Whereas, organic growth for Sainsbury’s has taken through a longer period of time and through the evolution of the own management and acquired knowledge. On analysing, the growth factors, it can be pointed out that the growth strategy adapted by Sainsbury has been a major reason for its slower growth rate.
ASDA STORES LIMITED was founded asAssociated Dairies & Farm Stores Limitedin 1949 in Leeds. However, the present name of Asda came into existence following a merger with Asquith chain of three supermarkets and Associated Dairies in 1965. The company however, parted with its dairy department on a management buyout.
The company followed the growth policy similar to that of Tesco in order to grow and provide different kinds of products. The newly focused food retail group in order to expand its activities beyond the north England, went for buyout in the south where it took over the large format stores ofGateway Superstoresin 1989. On 26 July, 1999 Asda was purchased by the US retail-giant Wal-Mart. Since then the company, has operated as a subsidiary of the Wal-Mart group. However, Asda’s management has gone though a restructuring when it was sold to a Leeds based investment subsidiary of Wal-Mart, Corinth Services Limited in 2009.
Asda’s marketing campaigns has always been in limelight. The major strategic similarity between Asda and Sainsbury is that, both the organisations aim at low pricing. Therefore, the low pricing strategy that helped Sainsbury, to attract more customers and a major share in the market needs to be revised. Moreover, being an US subsidiary, it also followed several managerial set-ups those were previously unknown. A global growth of the Wal-Mart group, helped Asda gain its position as the second largest food-retailer in UK.
Both Tesco and Asda have structural, organisational and managerial differences with Sainsbury’s but on comparing the whole set-up, it can be concluded that Tesco and Sainsbury’s have some structural similarity. On the lines of structural strategy, it can be concluded that Tesco follows a more diversified activities by using several variants like, Express, Metro, superstore, Extra and Homeplus which helps them to reach larger number of customers with different kinds of variants.
CONCLUSION
While concluding this report, it can be said Sainbury’s has several strategical differences with its leading market leaders Tesco and Asda, however, it has started working on its set back and is currently responding to the organisational and social needs in a better way. Instead of a sluggish growth of the economy post 2008 it has recorded an increase in the total turnover thus, showing its organisational and managerial strength.
On analysing the retail food market and the activities of the major market leaders, it can be predicted that Sainsbury’s will enjoy a fast and steady growth following the path of organisational mergers, takeovers and most recently franchising. All these will help Sainsbury to grow at a faster pace. All the discussions, that have been done in this report are not absolute and are subject to limitations regarding the information, word limit and time.
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