Sainsbury Plc Is The Leading Food Retailer Marketing Essay

Sainsbury Plc Is The Leading Food Retailer Marketing Essay Business environment: The business environment is the external and internal environment in which company works and which help in company to run the business and help it to face the various situations which affect the organization and their operations. According to (J. Kew, J.Stredwick, 2005) Environment is situational and is unique to each organization. The external environment consists of changes that takes place outside organization and are external factors and the changes taking place within the company are called as internal factors. The objectives and strategies are based on this and they can be affected by this external and internal factor. Pest analysis tool help to understand the framework of the external and internal factor of the company which helps company to survive and establish in market. The scan of external macro environment can be expressed in following terms Political, Economic, Social, and Technology sometimes two additional factors environmental and legal make it a PESTEL analysis. The increase globalization is opportunity and a good challenge to Sainsbury. The challenge is to get the best quality/financially viable products from all over the world. It can enter the markets of the existing companies through joint ventures and enter into new markets but they do not have such plans in horizon. The ongoing investigation of price fixing among the big retailers and Sainsbury being in forefront of this allegation can have negative impact on industries and Sainsbury (Rigby 2008). Sainsbury has good consumer relationship but although this could lead to negative public image and consumers could feel cheated. HBOS is on with whom the financial service of the Sainsbury works or run with (Annual Report 2007). The recession may end up people buying more of the essentials than the luxury items on which Sainsbury has its greater profit margin. Credit crunch also affects the Sainsbury bank credit directly as it does not have established name in financial services. The prices of food have increased all around the world as there is crisis of food globally, that has result in increasing purchasing cost of Sainsburys (economist.com 2008[online]). That has lead in increase of most of the price of products in Supermarket. Rising fuel cost will also lead to the increase in overall supply chain of Sainsbury and leading to increase in prices. The increase competition will lead to let of incentives to consumers which again affect the Sainsbury as it has to driven down its prices most of the time. Social Environment The social environment includes all the demographics and socio-cultural issues that is population based on age, income classification and distributions, community works and different view to work. The government has stressed on eating healthy food and this has been promoted by it [eatwell.gov.uk 2008]. This can help Sainsbury to stock up healthy food in cheaper price than other manufacturers and get benefit with this new trend. Sainsbury follows the responsibility of the society and its surroundings. It operates affective charities, sponsor games, arrange social activities, raise fund for animal and many more. As UK has aging population Sainsbury has started to recruit older employees to strike into this ongoing labor pool. Technological Environment The technological environment comprises of modern and new product innovation, invention and improvement. Its been predicted that by 2011 the UK online sales will be reaching Eur263bn, of which British shoppers would be their third in whole income. The 8% of the advertisement globally is through internet expense and these are rapidly growing (The Economist, 2007). The supermarkets have disadvantages of long queue holding for customers specially those who have fewer items to buy the self checkout machine like Asda and Tesco has helped the customers. If Sainsbury develops the self checkout service and its stores for 24 hrs can help boost the sales. The RFID can be used significantly to supply chain for Sainsbury although not in use if applied it can lead to most profit organizations [directions magazine 2008]. Legal Environment The stringent laws on food and drinks will lead to ever increase cost on packaging and labeling of the food item which is an additional financial burden on the Sainsbury. Even with respect to their interest in financial services there is more legal scrutiny in operations with the Sainsbury bank that is there is more responsibilities regarding the legal compliance and other risks. Sainsburys is in the boundaries of the legal forces locally, nationally and globally and are very close to enforcement in which firm operate. The company maintains different type of legal laws including Consumer laws, Competition laws, Employment laws and health and safety laws. Environmental Environment A lot of emphasis has been on big companies to increase their efficiency by reducing the carbon footprint [Bream 2008]. That is to go green issues and to reduce an impact on the environment the Sainsbury has to invest more on the green issues. Other like organic food and their sales and treatment of animals, affects Sainsbury on various levels. The importance given to this issues means they have to provide to consumers that are priced govern. It is a sensitive issue which Sainsbury has to cover with respect to bearing their consumers. Analysis of Porters Five Forces Porters Five Forces: By porters five forces we are going to investigate the threats of substitutes from supermarkets, the buying capability of purchasing groceries, buying capability of suppliers regarding groceries, last but not the least the buying power of customers. www.321books.co.uk, (2010) [online] 1) Barriers for Entry: The food retail market have a very high barrier to their entry , firstly because it is the most sophisticated sectors in the UK and it needs lot of investment and a significant brand which take years to establish (Doyle 2002). And retail is also not on advanced stage in UK and most of the other western world that is there is a scope for new entrants to develop in market is very scarce. It is necessary to know the basic and local things in food market. They have a certain support from few of their global markets in UK. 2) Power of buyer: Since the competitors sell the same product the power of buyer if high in this industry. The only difference is in their consumer loyalty and differentiation in price. As economy goes down due to recession consumer needs are going to be more concern and their power will be more. The strategy of Tesco was to cut prices in order to increase the sales. The reason for the success of its competitor like Asda and Tesco was high as they were not only handling price cut but also expanding on home wears. Asda adopted the strategy of high volume non-food strengths and MS went with the strategy of top-end luxury food. 3) Power of suppliers: Suppliers power is equally distributed and they are the huge companies like Unilever, Cadbury, PG which has huge brand appeal. If supermarkets do not sell their products the consumer will shift their loyalties and suppliers will be more powerful. If product of big companies as well doesnt reach supermarket stores their sales volume could be hampered. There is no consideration of small suppliers as it depends on the supermarkets. The low price platform of the retailers have given the customer the platform to buy from the stores with less or promotional price. 4) Threat of Substitute: Threat of substitute in food retail industry is low as it is a necessity especially in emerging market and developed world. The retail market tries to bring new updates and promotions so that shopping can be pleasurable experience which makes it difficult to be replaced in market. The major treat comes from the internal substitute where one supermarket lap up business of other. 5. Rivalry: There is a very stiff competition to grab the market shares from all supermarkets. The market share of Sainsbury was 14.9% in 2007 and has increased gradually. SWOT Analysis Strength, weakness, Threat and Opportunities Various companies need several business strategies to run their business in a smooth manner. They follow various methods to do so. One of the major is to analysis the strengths weakness of the company along with the opportunities it has and which may arise in future and the threats which they may face. STRENGTHS WEAKNESS THREATS OPPORTUNITIES Strengths The great turnaround in Sainsbury business is through its growth of thirteen straight quarters (Rigby and Braithwaite 2008). The turnover in 2007 was 7% with an increase in profit was around 450% P.A. It consists of good environmental issues due to its recently taken steps of buying fair-trade goods.  It is one supermarket chain which has a celebrity endorsing products leading to increased sales. The Jamie Oliver has helped in uplift in sales and it can be seen in various ad campaigns. There positive consumer brand is liked by both green activities and consumers. The key strengths of the company are marketing and branding has distinguished them in minds of customers. The orange color used by Sainsbury is very traditional to the campaign. Weakness 1. It has been recently overtaken by some private firm called as Qataris, Sainsbury being governed by the firms can lead to the consumer switching loyalties. 2. Except U.K. Sainsbury is not present elsewhere unlike Tesco expansion plan [economist.com 2008]. This can lead to problem if there is some problem in food retailing in U.K or if there needs to be source of extra growth. 3. The differentiating competitive advantages are missing. 4. Their infrastructure change in their stores was a weak attempt which only ended up confusing customer in stores. Opportunities: Sainsbury has many other businesses that have a great future opportunity. Their investment in property and pound 40 million profits through its bank seems good strategy to follow. The organization has resources and capabilities to improve with technology and new applications. They can win back the customer trust by improving their customer service especially through loyalty programs. Threats: 1. Supply chain of Sainsbury is directly affected by the bio-fuel consumption which is important tool for green environment effects. 2. Its operations are subjected many regulatory requirements related in planning, pension plans, employment and employment in terms of products and services. [www.guardian.co.uk 2010] The market share pie chart shows that Sainsbury has slipped down in recent year in the market drastically. Tesco leads with 30.6%, Asda ranks 2 with 16.8% and Sainsbury was out spaced with 4.4% [www.guardian.co.uk, 2010] Bowman strategy Clock: C:My DocumentsWEBSITEbowmans_lesson.gif C.Bowman, D.Faulkner, (1996) The Bowmans clock is analyses competitive position of the markets as compared to other competitors. The first step is competitor analysis, the process of identifying, assessing and selecting the key competitors. The second step is developing competitive e marketing strategies that strongly position the company against competitors and give it the greatest possible competitive advantage {P.Kotler, et-al, (2008)}. There are eight options: 1) High Price: Sainsbury being the old brand they have their price on products very much more which mean high margin. Sainsbury has high price for all its products but it does focus more on pricing then to focus on customers. Sainsbury has a high price and hence is a cost Leadership. They have high price and value products. Increased price/standard: Sainsbury has the marketing tool of high pricing hence it has higher margin than most of its competitors, but it is not only the high price it is also the quality and exclusivity that they offer. The Sainsbury is brand hence is followed by the people who are endorsed with brands and it does have most of its target customers as the loyal customers who are stuck with them due to its high value and brand image. www.brandingstrategyinsider.com, (2010) [Online] 2) Differentiator: Sainsbury Differentiates itself with their main objective of high price offered to customers with an added value services provided as it has value and brand image associated with it. a) Focused differentiation: The Sainsbury is the cost differentiator as it has its loyal customers and is in UK market upholder of its brand image as compared to other competitors it does not focus on lowering the price. In order to gain back its position the Sainsbury should focus on following differentiator factor It should focus to be successful internationally, as Sainsbury is only in UK. It should develop new market and new product to gain its position. Focus on its customer service: Sainsbury has lost their customers because they were not getting good products in higher values as compared to Tesco and Asda rates. It should focus on unique product and service. Developing retail service: Sainsbury has resources which they should use and develop the self checkout on 24 hours stores and develop its IT services it will help in increasing their sale. Earning Customer loyalty back through various nectar points and loyalty cards giving customers offers and benefits and hence being committed to customer and developing the bond of loyal customers. It should maintain long term customer relationship management. In year 200 the organization realized that they were not gaining success and their share price fell by 23.3% which needed some drastic changes to overcome the business performance. Sir Peter had through its supervision concentrated on Stores, Customer service and maintaining their supply chain and also enabling the development of its IT solution to improve their performance. In 200o the store had undergone the strategic programs to overcome their store faults. The steps which were taken were as follows To increase their share holder value store needed to be placed in new market position The target customers needed to be focused and the stores management and service needs to be improved. Focus on customer shopping experience through its team members and managers work in the store. The infrastructure needs to be focused as in accordance with customer and the commodity and employee performance should be raised. The advantage of synergic group should be taken and focus on B2B,B2C and e-commerce These were the strategic measures taken by the company but it still needed a deep organization and customer development with respect to competition in market [www.universityessays.com]. 2) Focused differentiation: Sainsbury strategy is not their customers but they focus more and their products and hence always have them as high priced. Their target customers are those who have image of high price means high quality and since its mainly in Britain there most of the loyal customers are their own people who prefer the brands, on other hand their competitor like Tesco and Asda targets customers by control on pricing. It does focus on its product value and high price but Sainsbury should know that the price is a marketing tool which attracts people the most. The most important reason for the fall of Sainsbury from top supermarket in UK market to number three, is as stated by their CEO (J. King 2004) We have not stayed as sharp on pricing as we should have done. www.allbusiness.com, (2010) [Online] www.brandingstrategyinsider.com, (2010) [Online] Performance Sainsburys reports slowest sales growth in five years Sainsbury has reported slowest growth in past five years and has been forecasted to have tough year ahead. Their like for like sales excluding the fuel rise 1.7% in fourth quarter compared to third quarter 3.7%. In 2009 sales were 2.3% ahead [www.guardian.co.uk]. Sales of general merchandise like clothes grew three times than the rate of food. It had swung a profit before tax of pound 19 million from loss of pound 48.6 million [www.guardian.co.uk.]. According to news and media it expects to sell its independent titles in UK shortly, after having 39%drop in full year operating profits. It had made loss of euro 31.4m down from 161.4m in 2008[www.guardian.co.uk.] The five year operating margin of Sainsbury 1. Underlying operating margin5  (%) Underlying operating margin (%) 2. Underlying profit before tax6  ( £m) Underlying profit before tax ( £m) 3. Underlying basic earnings per share7  (pence) Underlying basic earnings per share (pence) [www.j-sainsbury.com 2010] http://www.j-sainsbury.com/ar10/businessreview/keyfinancialperformanceindicators.shtml From the above figure 3 figure of five year plan of Sainsbury performance can be seen that the Sainsbury had a significantly slow sales growth of margin in these years. Conclusion: The Sainsbury has slipped down in UK market in past five years which can be proved from the evidence collected in porters five forces and SWOT analysis. The business environment study of Sainsbury shows that the main reason of the slipped down of Sainsbury was its not concentrating on the price factor but tits more emphasis in changing and developing the stores which had made customers more complicated about their store locations. Also Sainsbury overtaken by the Qataris the other foreign body has raised the question to their customers and hence switching their customer loyalty. The other competitors of Sainsbury were always on the market increasing their sales and attracting customers through low price like Tesco and Asda but Sainsbury enjoyed its leadership. They should focus on more of its strengths but being threat by the competition through price competition they are becoming weak and hence it has slipped down in market. In order to remain in competition Sainsbury should focus more on its customers and make their products look different from those of others. They should keep up with the technology and always be updated and be in pace with others. They should focus on their price strategy and support the environmental issues to compete in the market they have to bear in mind the customer likes and change according to their tastes.