Analysis of Sainsbury’s Strategy

Sainsbury’s plc is a leading retailer of household, clothing, and food products, targeting consumers of all income brackets. They offer a variety of products from different suppliers in order to allow consumers a wider range of choices. The company has both physical and online stores where consumers can purchase products at their convenience. It currently employs about 185,000 people. The employees reflect the organization’s value for diversity, and enjoy a great working environment with wages set at £9.20.

Sainsbury’s’ sales for the year 2018 amounted to £ 31735 million with an underlying profit of £589 million before tax (Sainsbury’s Group 2018). The company’s five year profit before tax graph is presented below.

The company currently holds the second place on the grocery market share at 16% after Tesco, which holds 27.6%. The firm is closely followed by Asda at 15% (Kantar World Panel 2018).

The aim is to create value for shareholders, customers and employees by adapting to the changing retail market. This paper analyses the economic (inflation, exchange rate and income), socio-cultural (demand for better quality of food and non-food products) and technological (online shift in retail) factors affecting Sainsbury’s. It also addresses the four priorities the organization focuses on in order to achieve their strategic plan. These priorities are to: enhance their food product section; develop their general merchandise and clothing supply; grow Sainsbury’s bank; and maintain cost-saving strategies.

Macroenvironmental Factors

Macroeconomic factors are external influences outside the control of organizations that determine how businesses operate. Companies must adapt to changes in these factors in order to maintain their activities. Usually four macroeconomic factors affect economic establishments: political, economic, socio-cultural and technological abbreviated as PEST.

Economic factors affecting grocery retailers include economic growth, income, interest rates, inflation, unemployment and exchange rates (Shabanova et al 2015). The fiscal growth of a given country provides an insight into the purchasing power and patterns of consumers. Declining or stagnating economies negatively impact business. Conversely growing markets have a positive effect on commercial entities (Shabanova et al 2015). Exchange rates are crucial for organizations that extend internationally because unstable currencies make it difficult to plan for import and export transactions in affected countries (Gupta 2013). Inflation directly affects consumer purchases especially if the inflation rate is higher than the rate of growth in income (Shabanova et al 2015). Interest rates influence enterprises by affecting the cost of capital acquisition for growth and expansion. Countries with high interest rates generally suppress businesses, the opposite situation is seen in low interest rate economies (Gupta 2013).

Socio-cultural factors address demographics and how they affect enterprises, and the prevailing beliefs and attitudes (Sonderegger and Sauer 2013). Demographic factors consider the age profile and growth rate of the population. Consumer preferences exist within different age brackets, that is, there are intergenerational differences in product perception. Growing populations increase demand and diversification needs in society. Societal levels of education and health, and standards of living influence customer inclinations towards certain goods and services. There is a noticeable shift in demand for better quality and efficiency in products as the social status of consumers improves (Sonderegger and Sauer 2013). Lifestyle choices and religious beliefs also influence demand of certain goods. In a society that suffers from morbid obesity there can be a downward trend in demand for processed foods and an increased need for whole foods. Socio-cultural factors also influence positively or negatively employment patterns and employee attitudes towards work (Sonderegger and Sauer 2013). Social values espoused by corporations play a major role in how customers view the enterprise. Globalisation has made it necessary for companies to become more diverse in hiring and customer service.

Technological advancement is extremely rapid in the present world demanding similarly rapid adaptation from enterprises (Kurnia et al 2015). The internet in particular has transformed retail businesses with more consumers preferring to shop online and have products delivered at their homes or work places (Blázquez 2014). It is also easier to compare products and select desired ones online rather than moving from aisle to aisle in a grocery store. Besides online retail technology also directly impacts the quality of products presented to consumers. This is particularly true for electronic items and food products (Sonderegger and Sauer 2013). Electronic products that perform more functions and are highly efficient attract more customers. Equally retailers could make better coffee, confectionaries and dairy products using superior technology. Companies must look out for emerging technologies that pose potentially radical alterations to their business models (Kurnia et al 2015).

Organizational Strategy

Economic factors

The economic impact of the choice to exit the European Union after the Brexit vote is being felt by various retailers in the country including Sainsbury’s. There has been a slight decline in economy which has led to higher prices of both food and non-food products. The inflation rate increased to 3% in 2018 while the average earning only improved by about 2%. This improved the earnings for retailers but decreased consumer disposable income. The Sterling pound was also devalued as a result of Brexit making it more expensive to import goods. The retail market for food products increased by about 3.7% in the year 2018 while that for non-food products declined by 1.5%. Consumer confidence for new retail sales and as per Gfk dropped to below 1% indicating decreased optimism in the economy among customers (Sainsbury’s Group 2018).

Socio-cultural factors

Food is an integral part of everyday life and attracts multiple preferences among consumers. The foregoing discussion mentions that there was an increased demand for food by consumers in 2018. Sainsbury’s is known for its excellent food and this saw increased transactions on food items. This improvement is attributed to the fact that the company offers variety, quality, and competitive prices for this product. The company saved about £40 million on food transactions as a result of measures placed to enhance the section. Sainsbury’s boasts of diversity and inclusivity among its employees particularly with women making up 55% of the colleagues. They also support various causes including the LGBTA movement and donated £35 million to various charities including tree planting organisations (Sainbury’s Group 2018).

Technological factors

The single most important technological factor for Sainsbury’s was the shift in shopping habits by buyers with most preferring to shop online rather than go to traditional retail stores. The allure of online shopping is that it offers an array of goods to choose from, at flexible hours and delivery at the convenience of the buyer. There was a significant increase in Click & Collect accounts at the same time a decline in sales at traditional shops. The company quickly adapted to the new environment by improving their online presence and revamping their website. Sainsbury’s acquired Argos, a remarkable retailer of non-food merchandise. Argos has a well-established online presence which boosted Sainsbury’s online presence in turn (Sainbury’s Group 2018).

TOWS matrix

Internal Factors

Strengths

1. Online presence

2. Integration with Argos

3. Diverse and high quality products

4. Competitive prices

Weaknesses

1. Decreased shopping at traditional stores

2. Low employee remuneration

External Factors

Opportunities

1. Increased demand for food products

2. Increased online shopping

SO strategies

1. Increase quantity of food produced.

2. Control quantity of food

3. Enhance website to allow faster online shopping and improve catalogue of products available.

WO strategies

1. Use low income stores as storage, shipping and delivery stations for online business.

2. Use wages accrued from increased food sales to increase employee pay.

Threats

1. Increasing inflation

2. Devaluation of the sterling pound

3. Decreased income

4. Decreased demand for non-food products

5. Strong competition

ST strategies

1. Grow Sainsbury’s bank to increase capital for increasing supply of food and merchandise.

2. Use Argos to promote non-food merchandise online

3. Promote Sainsbury’s bank as a lender and financier for customers.

4. Lower prices reasonably to attract more customers to Sainsbury’s to improve the competitive edge against competitors.

5. Diversify clothing division by increased variety and quantity of men’s wear.

WT strategies

1. Offer mortgages and credit to employees through Sainsbury’s bank.

2. Offer discounts for shoppers using Sainsbury’s credit cards for both online and traditional shopping.

3. Limit the use of foreign suppliers to stores based in the UK to avoid the negative impact of the lower value of the Sterling pound.

4. Have an online presence in foreign countries and encourage clients to buy from online stores in their country.

Human Resources Strategy

The company’s vertical structure includes a board of directors headed by the chief executive officer. The board is the final decision maker in all matters pertaining to the organization. It manages non-operational aspects such as audit, remuneration and corporate responsibility. Below the main board is the operating board which includes various heads of divisions such as retail, food, finances and investment. Both boards have committees to handle various aspects of the organization and they collaborate horizontally to achieve the company’s objectives. Both the boards and committees carry out pre-scheduled meetings to perform their assigned duties. The boards reviewed the strategic plans for 2018 and their implementation in particular the core supermarket strategy, Argos integration, and Sainsbury’s bank. They also reviewed the progress of the digital business and how data analytics could be used to improve it. A review of the company’s culture, values and working conditions in the physical stores was also an agenda for board members. One weakness identified with the boards is the lack of diversity. Only 30% of the members are women and only 10% are non-Caucasian (Sainsbury’s Group 2018).

Low level employees interact with board members occasionally in order to gain their views on matters pertaining to the company’s agenda. One such session provided insights on employees’ views on remuneration, strategic principles and the general outlook of the company’s treatment of the colleagues. Upon the whole, the boards and their committees participate more in strategic planning and do not involve the colleagues. However, the strategy for human resource management includes training of employees and this improves the overall performance of the company (Sainsbury’s Group 2018).

References

Blázquez, M., 2014. Fashion shopping in multichannel retail: The role of technology in enhancing the customer experience. International Journal of Electronic Commerce, 18(4), pp.97-116.

Gupta, A., 2013. Environment & PEST analysis: an approach to external business environment. International Journal of Modern Social Sciences, 2(1), pp.34-43.

Kantar World Panel., 2018. Grocery Markets Shares (12 weeks ending). [Online]. Available at: <https://www.kantarworldpanel.com/en/grocery-market-share/great- britain/snapshot/02.12.18/> [Accessed 30 Dec 2018].

Kurnia, S., Choudrie, J., Mahbubur, R.M. and Alzougool, B., 2015. E-commerce technology adoption: A Malaysian grocery SME retail sector study. Journal of Business Research, 68(9), pp.1906-1918.

Sainsbury’s Group. 2018. Annual Report and Financial Statements 2018. [Online]. Available at: <https://www.about.sainsburys.co.uk/~/media/Files/S/Sainsburys/documents/reports-and-presentations/annual-reports/sainsburys-ar-2018-full-report-v2.pdf> [Accessed 30 Dec 2018].

Shabanova, L.B., Ismagilova, G.N., Salimov, L.N. and Akhmadeev, M.G., 2015. PEST-Analysis and SWOT-Analysis as the most important tools to strengthen the competitive advantages of commercial enterprises. Mediterranean Journal of Social Sciences, 6(3), pp.705.

Sonderegger, A. and Sauer, J., 2013. The influence of socio-cultural background and product value in usability testing. Applied Ergonomics, 44(3), pp.341-349.