An Analysis Of Sainsburys Supermarket

An Analysis Of Sainsburys Supermarket Founded in 1869 by John James Sainsbury along with his wife Mary Ann in London and then gradually grew to become the largest grocery retailer by 1922. Sainsburys is the UKs oldest major food retailer with their first store opened in 1869. It strives to keep up with its trusted heritage of quality with best services. Past: In the early 1990s Sainsburys, market leader so far, lost its position to Tesco and in 2004 it came down to no. three after Tesco and Asda. The downfall involved many reasons including changing managements, lack of innovative strategies, failing to assess the impact of loyalty cards scheme, unhealthy acquisition in Egypt and a misleading marketing strategy which failed to communicate the right message to the consumers. Present: Sainsburys started to fight back and be noticed after Justin King took over the management role in early 2004 and came up with a revival strategy under the name of Making Sainsburys Great Again. The process involved a no. of mergers and acquisitions of small chains in the south east England and the Midlands. The new message of Try Something New Today went really well with the media and the consumer led by the famous celebrity chef Jamie Oliver it encouraged buyers to innovate in their kitchens and make their food interesting. Future: The supermarket industry has reached a saturation point in the UK. How long can Sainsburys go on opening up new stores at locations such that its stores do not start to cannibalize each other? Using the Ansoff Growth Matrix two future strategies are suggested for Sainsburys: Opening up of Sainsburys Travels and Tours Product Development On the basis of the success potential in the travel business, Sainsburys might venture into the Travel and Tours business by way of Product Development as per Ansoff Growth Matrix tool for future strategy selection. Sainsburys has a very high probability of success as measured with the help of SWOT analysis and assessing the keys to success and the critical factors. Sainsburys China Market Development Sainsburys might opt for the Market development strategy by offering the supermarket business to the land of opportunities China. The move will be mad after the necessary PEST analysis has been done and companys SWT has been assessed with Chinese perspective. Sainsburys Strategic Corporate Development History: 1990 to 2004 Corporations are required to add value by mans of their business. The goal is to manage and control the businesses for a long term and sustainable success. The corporate level strategy deals with the choice of the business and the growth and development related to it. Sainsburys enjoyed the position of the leader in the UK supermarket industry up to the early 1990s. It had sustained its image of a name trusted with quality and service. British like old names with some history behind them. The company started to lose its grip in the early nineties due to a number of reasons. There was a change in management after the longtime CEO John David Sainsbury retired. He was replaced by David Sainsbury who bought about a change in the management style. Although the times were changing and some of the people in the management thought strongly about launching loyalty card schemes and also favored introduction of non-food items in the stores, both the options were rejected by the fresh management. The biggest rival Tesco had gradually moved up on the market scales and the internal indecisions help it get hold of better deals from suppliers. We will analyze Sainsburys approach in view of Ansoff Growth Matrix perspective. Ansoffs matrix is a tool that helps businesses decide their product and market growth strategy. Market Penetration: The strategy had been the simple approach of Market Penetration Strategy. As per Ansoff Matrix, this can be easily explained as the company keeps on offering the same product into the existing market. From 1993 onwards Sainsburys was unconsciously moving forward on the basis of wait and see policy. Up till now Sainsburys had enjoyed the position with no real threat. It started with price cuts on almost 30 of its labels, three months after came up with Tesco Value Lime. The move affected Sainsburys profit margins. Product Development: This made the management realize to offer something new to the customers and after Tesco came up with new format stores named Tesco Metro serving the town centers in 1994, Sainsburys responded with announcement of Sainsburys Central format. This approach is interpreted as Product Development strategy where a new product is introduced into existing market. The new project offered shopping facilities to the small towns was initiated leading to Country Town stores. The stores were formatted keeping in mind the distance the buyers have to travel for their weekly grocery shoppings. The new service enabled the customers to do so without going to large, out of town stores. They were mainly planned to be opened I the south east, which has always been Sainsburys strong hold. The 1st store was opened by the end of 1998 in Ongar (Essex). These stores have now been standardized as per the regular stores and they maintain even trading terms Setbacks: The company fell behind yet again in 1995 when the management failed to realize the importance of loyalty cards schemes and refused to go ahead with launch of any such offer. They had to reconsider their decision 18 months later after Tescos club card was introduced. In 1996 the company ventured into opening up of Sainsburys Bank. In addition it acquired Texas Homecare for 290M (GBP) in 1996. These expansions had a major effect on the financials and Sainsburys announced first fall in profits in 22 years. Another reason which affected Sainsburys sales was the perception among the customers that it is more expensive than its rivals. The marketing campaigns failed to convey the message that Sainsburys offers as good quality and value for money as its rivals. The marketing failed to communicate the required message of low cost and high vale and the company endured the consequences. The year 1996 saw Sainsburys losing its position of market leader to Tesco. Acquisition and Divestment: Sainsbury attained 80.1% of share in an Egyptian distribution group SAE. The group provided retailing services in Egypt with 100 stores and almost 2000 employees at the time or acquisition. The decision was criticized by the analyst as it was made during the most testing times of Sainsburys history. The reason behind the decision might have been the success Tesco outside UK. However the meager results shown by the Egyptian business led to the divestment of the share and sale of shares in 2001. The brand re-launch In 1998 the company again went under a management change and George Bull, the new Chairman took over and decided to re-launch the Sainsburys Brand. The new management targeted to revive Sainsburys corporate identity and started with the launch of a new logo, going for a slightly informal font and new slogan of making life taste better. Staff uniforms were redesigned The company underwent a Business Transformation Program (BTP) after the appointment of Peter Davis who showed significant improvement in the companys turnover and exceeded the targets. The BTP involved a 3.00bn (GBP) upgrade of the stores, distribution and IT equipment. The distribution setup included construction of fully automated depots which cost 100m (GBP) each and was later criticized by the new management. Sainsburys moved into the current headquarters at Holborn in 2001. The Nectar loyalty card scheme was launched in 2002 which replaced the Sainsburys Reward Card. Current Strategic Situation: 2004 to date: At the end of March 2004, new CEO Justin King joined the company who came up with a recovery plan for Sainsbury under the banner of Making Sainsburys Great Again. It was a three year recovery plan which was very positively received by the media and the stock market. The strategy involved laying off redundant staff from the head offices and recruiting additional staff for shop floors to increased and improved customer service quality. Sainsburys was having major issues with its stock availability, inventory and supply chain management. The new depot monitoring systems were to be implemented and IBM was given the deal to upgrade the system. Mergers, Acquisitions and Divestments: In 2004 Sainsburys new management under the Making Sainsburys Great Again plan to concentrate on its strong UK customer base, divested the American subsidiary Shaws. It was sold to Albertsons. The no. of convenient stores was increased through an acquisition of 54 Bells Stores chain which was based in the north-east of England. Another Acquisition took place with purchasing o 114 stores of Jackson Stores based in Yorkshire and the North Midlands. The acquisition took place in November 2004. Another small chain of 6 stores was acquired from SL Shaw lt. in April 2005. New Marketing Strategy Try something new today: Sainsburys is at a critical stage at the moment. Sainsburys Supermarkets have gone through a period of dramatic regression, in which they have been surpassed by rivals Tesco and, more recently, in 2004, Wal-Mart-owned Asda. (Global Market Information Database, 2004). It is not easy for an established and old UK brand to vanish off from the market but the competitors have. While it is rare for major brands to disappear completely from the UK high street, these competitors have acquired share from Sainsburys by way of their commitment to low and attractive prices, whereas Sainsburys has been focusing on its Business Transformation Program and has indulged itself in promoting an image of quality, and value rather than being affordable The present day UK customers which have a huge percentage of non British are heavily influenced by the economical changes and are passing through tough times. The message which has been conveyed by the Tesco and Asda was received warmly as it assured them of a combination of quality and assurance along with low price. As a result, Sainsbury is still considered comparatively expensive just because it failed to convey the message through proper marketing. A massive marketing campaign of Try Something New Today was launched in September 2005, which was designed to make people go off the shopping routine encourage them to be more adventurous in food eating. Under the campaign umbrellas, the spokesperson for the campaign Jamie Oliver encouraged the customers to be. The message conveyed was it supplies quality food as well as the only one offering useful ideas to make your food interesting. The aim was to reach and convince all the customers and not only the well off. Sainsburys is attempting to respond forcefully to the challenges it faces, however competition in the UK market is becoming increasingly intense, and Sainsburys faces a difficult struggle to regain the ground it has lost to rivals that continue to expand aggressively The management has a continuous approach towards work with responsibility. They attempt to provide fresh food and innovate with respect to customers needs. It serves over 18.5 million customers every week. The large stores offer over 30000 products along with complementary Non-Food products e.g. the TU clothing range which has over 1 million transactions every week. Along with other services, an Internet based shopping service has also been made available, keeping in trend with the changing requirements o the customers, to almost 90% of UK households. The company has a chain of stores with 537 supermarkets and 335 convenience stores, hence a total of 872 stores in England, Scotland, Wales and Ireland, including Hypermarkets (super large stores- Sainsburys stores- main plus), Sainsburys Central and Sainsburys local (supermarket and local convenient stores format main mission). The company has been eyeing the opportunity of expanding its business outside the UK. Especially the hyper potential in Asia (especially South East Asia and China). By analyzing Tescos huge success in the market outside UK, Sainsburys venture might not be far away. It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index http://www.j-sainsbury.co.uk/index.asp?pageid=12 http://en.wikipedia.org/wiki/Sainsburys Strategic Direction for the Future: Sainsburys has a history of innovation and it continues to strengthen its relationship with its customers and has gone ahead with the growth of their convenient store operations, the online offers and the Sainsburys Bank. They have a constant approach towards developing new offers in line with the evolving customers demands resulting in operational growth and profitability. http://www.j-sainsbury.co.uk/ar08/businessreview/corporateobjectives.shtml Choosing a Strategy: A marketing tool for making the market strategy is the Ansoff Matrix, which gives us strategic choices for obtaining our business and market objectives. It offers four choices which deal with marketing and growth of existing or new products in existing or new markets. Ansoff On the basis of current scenarios there are two pathways for Sainsburys to opt from, for a sustainable growth and presence for a long time to come. Product Development Strategy: Sainsburys has a huge loyal customer base. The suggested new service product through Sainsburys Travel and Tours will provide these customers to utilize yet another trustworthy service by their trusted name. Market Development Strategy: Although Sainsburys has not yet ventured into the International market but the step might not be that far away keeping in mind the huge success TESCO has had in the international market. Sainsburys could venture into international expansion keeping in mind the growing and still unsaturated markets of China and Southeast Asia. Product Development Sainsburys Travels and Tours: Sainsburys can opt for launching Sainsburys Travels and Tours is by choosing the Product Development Strategy and is introducing a new product into existing market. The growing Travel and Tours market will definitely have a positive effect on the Sainsburys portfolio by increasing its profits and hence strengthening its business. Why Product Development? The Sainsburys Travels and Tours will provide the company to excel and achieve its strategic goals on the basis The supermarket industry has become fairly saturated in the UK and at present Sainsburys is eyeing to expand itself in the International market but it will be a while before it actually does. The Travel industry is a growing market and has a huge potential of growth. The new product will benefit the company earn huge profitability margins which are becoming hard to achieve I the supermarket industry. The Sainsburys has a huge loyal customer base which will be utilized for promotions and marketing purpose. The project has a high probability of success given a chance of a fresh new product offered by a supermarket chain. Market Demographics: Although year 2009 has seen the worst recession since 1930, there are definite signs that the cycle is now turning. Travel industry has suffered consequences of economic crush but the consumer confidence is indicating escalating progress. UNWTO is expecting a reasonable growth of 5% in 2010. There was an upward trend during the last quarter of 2009 which showed 2% upswing. The development is further strengthen by the Air Transport Data from IATA, which shows passenger traffic strength since September 2009 Asia is expected to show the greatest recovery being less effected by the economic crush (comparatively). Growth is also expected to resume in America and Europe. A large number of countries around the world have shown positive growth in the first two months of 2010. Overall the total of tourists arrivals during the first two months of 2010 was 119 million showing 7% improvement as compared to 2009 SWOT The SWOT analysis summarizes the vital strengths and weaknesses of the company. This SWOT analyses the new product line and reviews the opportunities and threats which Sainsburys may face Strengths Image differentiation with respect to Brand name The customer to employee ratio is low Staff is highly trained and customer focused Loyal customer base An interesting, diverse and new product offered by a trusted service provider Established network of outlets Weaknesses Difficulties related to finding employees with required skills and attitude Presenting the customers with interesting offers on continuous basis Lack of experience in the new industry Business limited to UK only Opportunities rapidly growing market all over the world Growing number of people with increasing need and desire for holidays The existing Utilizing the existing Nectar database for identifying potential customers Threats Lingering effects of the slump in economy Natural disaster such as he recent Icelandic volcanoes eruption Highly competitive industry Key to success Sainsbury has always aimed to be the consumers first choice for food, delivering quality products with great service at a competitive cost. The company is striving to achieve the objective of leading margins with diverse market and delivering strong profits every year. The new product will benefit the company earn huge profitability margins which are becoming hard to achieve in the supermarket industry. Critical Issues: What can go wrong? The Sainsburys already has an established huge no. of loyal customers who would be happy to have an option o a different kind of service offered from their trust worthy service provider. The expectation for a stable turnover is based on the fact that it is an established name offering a new product on the basis of its goodwill. How likely it is to happen? The expected growth can be effected by increasing inflation rates. The Travel Industry faced a huge blow after 9-11 incident. What are the consequences? Any unforeseen incident like this (God forbid) will have long lasting effects on the companys growth, profitability and future expansions and plans. Competitive Advantage Nectar Loyalty Card Database The database can provide an excellent competitive advantage because It will help the management to design the product, offerings, and travel and tour packages as per the preferences. The database can also be utilized to acquire knowledge about customers such as No. of family members Spending habits Income estimates Preferences with respect to food etc. Holiday routines Market Development Strategy: Sainsburys could also opt for the Market Development strategy with offering its existing product of Supermarket and offering it to a new market by venturing into a growing international market such as China. China is the promising power in todays business world and its domestic market allows huge potential for international companies with promising growth. Sainsburys is the third largest supermarket name in UK after Tesco, which already has a huge presence outside the UK and Asda which is owned by the industry giant Wal-Mart. The immediate rivals have other sources /markets to benefit from other then UK. But Sainsburys has so far only focused on the UK market and from last two decades its concentration has almost completely been occupied by gaining back the lost market shares from its competitors. For Sainsburys to venture into a new market, a PEST has to be made to know the market better and plan the strategy accordingly. PEST Analysis China: Political and Legal: Since 2001, china has entered into WTO and its market is open or multinationals to trade in. In china, supermarket industry is not considered as a prestigious as some other industries so the government rules and regularities are not so tough. The government is favoring development in the supermarket industry. Social: The demographics of china show that population growth rate 0.629% (2008) in which the youth from 0-14 years comprises of 20.1%. The Chinese customers have become more concerned about issues related to health and safety after the 2008 melamine contaminated milk issue. As per the current shopping trends in China, people prefer to buy in person (online buying is almost non-existent especially daily grocery). The families are very small units on average maximum of 4-5 per unit in sub urban areas where as mostly population in the larger cities is singly. Chinese prefer to buy on daily basis, fresh produce as per days requirement. Technology and development: China is a vast country with underdeveloped infrastructure so there will be immediate warehouse setup requirements. Chinese households have a very low trend of keeping refrigerators at home so big weekly supplies trips will take time to adjust in the culture. Environmental Factors: The plastic bags have been recently stopped in china. The govt. is still trying to establish regular and long term procedures for recycling. All these factors will be required to be kept during the planning and project development phase for Sainsburys China. Furthermore we will perform a SWOT analysis for Sainsburys with respect to its entry in the Chinese market. Strengths: Over a century of supermarket and retail experience Ambition for growth Experience from failed International acquisitions as Egypt. Weaknesses: Cultural difference Expansion will be slow initially Opportunities: A very large market size Huge potential of industry growth Govt. policies favor the Industry Expansion opportunities in the rural/western parts of China Changing consumer awareness with respect to shopping habits Threats: Immature market Rivalry to increase immensely Weak infrastructure Untrained local staff Increasing prices of raw materials Strategic Recommendations: Based on the above analysis Sainsburys should consider a slow and steady expansion strategy in China for long term results and sustained presence. Initially the stores should be opened in the urban and economically grown regions where customers will more readily adapt to change and new trend. Gradually then, on the basis of acquired knowledge, preferences, culture etc Sainsburys should venture into the suburban and rural areas. Sainsburys should use the critical factors involved in the success of the strategy such as It should strive to obtain consumers trust by offering good quality products at affordable prices. Health and safety measures should be the first priority so that no incident like the contaminated milk will occur. China is a big country and the company should fully utilize this factor for the locations o the stores. The locality factor should be given priority wile employing the Chinese as trust and ownership has a great value in Chinese culture. China is a growing country and its economic conditions will affect the pricing of the products Sainsburys should work on differentiating itself from the rivals from day one for developing long tem and healthy relationship with the consumers. Once Sainsburys makes its entry into China market, there is no looking back from the kind of growth and expansion opportunities it may provide. (http://en.wikipedia.org/wiki/Sainsburys ) Conclusion: During the last decade of 1990s and early 2000s saw Sainsburys going through a very testing time in its history. It lost its no. 1 position to Tesco and then no. 2 to Asda. Time saw Sainsburys make some serious lack of judgments on behalf of management decisions related to adapting to the changing times, acquisitions and divestments. The management made a serious lack of assessment while deciding for bringing out the loyalty card scheme. The profit margins were affected as the companys marketing campaign failed to register with the consumers. The mid 2000 saw Sainsburys coming out again to be a Supermarket force lead by Justin King. The new campaigns Making Sainsburys Great Again and the companys new slogan of Try Something New Today succeeded in reach the customers positively. Given the market saturation of the industry Sainsburys has been suggested two options for business expansion using Ansoff Growth Matrix tool. Product Development Sainsburys Travels and Tours Market Development Sainsburys China The necessary SWOT and PEST analysis tools have been used to assess and measure the factor involved and could affect the growth suggested. The Travels and Tours Industry promises growth based on demographics provided by the WTO and the UK travel forecasts. The loyal customers of Sainsburys would be more the happy to have another product offered by their trustworthy service provider. Sainsburys China will provide an opportunity for immense growth of supermarket industry in a vast and massive population of China. Sainsburys should take a steady approach by starting from the urban areas and slowly expanding in the remaining country while studying and adapting to the new culture and country.