Porter's Five Forces Analysis of Supermarket Industry

This assignment involves a comprehensive analysis of the retail supermarket industry using Porter's Five Forces model. The student is required to assess the attractiveness of the industry, determine the bargaining power of suppliers and buyers, evaluate the threat of new entrants and substitutes, and analyze the competitive rivalry among existing firms in the industry. This detailed analysis will provide insights into the dynamics of the industry and help businesses navigate its complexities.

Applied Corporate Strategy

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
External Analysis........................................................................................................................3
2) Resources and key competencies of Sainsbury......................................................................6
Company's recent strategy........................................................................................................10
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................14
APPENDIX....................................................................................................................................16

INTRODUCTION
Business environment can be described as the collection of all the internal and external
factors that affects the functioning of an organisation. Employee strength, management's attitude
physical resources of firm etc. constitute internal environment while external environment
involves customers, competitors, government, social trends , technological changes, legislation
etc. Corporate strategy is the action plan that provides the goals & objectives and the blue print
of how things are to be conducted in the company for achieving objectives and goals (Prajogo,
2016). Sainsbury, a British supermarket retailer dealing in clothing, groceries and housewares. It
is a publicly traded company and is listed on LSE and FTSE 100 component an is headquartered
in London, United
The present project report is going to conduct external analysis that will identify
opportunities and threats for the organisation. Further, the report will highlight internal analysis
of the company that will show the strengths and weaknesses. It will also reflect organisation's
capabilities and core competencies. Lastly, an evaluation will be done of Sainsbury's strategy of
merging with another supermarket retailer Asda.
MAIN BODY
External Analysis
Business environment is the sum total of all the internal and external factors that have the
capability of affecting operations of a company significantly. The internal factors that affects the
functioning of Sainsbury's are its employees, financial resources, level of technology employed
by the company, management team etc. The external factors are investors, customer,
government, competitors etc. (Fleisher and Bensoussan, 2015).
External analysis is the scanning of environment that helps the company in identifying
the different opportunities and threats present in the market. It also includes analysing the power
of different aspects of business environment such as force of customers, suppliers etc.
PESTLE Analysis
This analysis is technique for identifying the macro-environment factors that affects the
organisation. It consists of following components that are discussed below:

Illustration 1: Pestle Analysis
(Source: What is a PESTLE Analysis and how can it help,2015)
Factors Impact
Political Sainsbury's business would be affected in the
case of strict trade regulations, high corporate
tax etc. For example, after the Brexit, there will
be changes in the current trade laws as
government would no longer be obliged to
follow EU directives.
Economic Sainsbury would have to keep its products at
low price for surviving in the market. The
company could expand its operations in the
emerging markets of the world for neutering

the effect of home country
Social Sainsbury grabbed this opportunity by offering
quick food that could be easily cooked at
home, saving time of these segment of market.
Constantly changing preferences of the
customers is a threat for the company because
making modifications in the business as per the
need of customers is a difficult task for the
firm.
Technological evel of technology adapted by firms in the
industry impact the functioning of Sainsbury.
For example, employing AI in customer
support services, online delivery of goods and
services, integrated management systems
within the organisations are some factors that
can help the company in enhancing its
productivity and achieving organisational
objectives.
Legal Employment laws, health and safety standards,
food regulations, trade laws, consumer
protection are some legislations that directly
influences the strategies' formulation decision
of the Sainsbury.
Environmental Sainsbury's CSR policy involves Reduce,
Reuse and Recycle that efficiently helps in its
waste management and efficient packaging
mechanism

Porter's five Forces
Attractiveness of industry could be known by undertaking Porter's five Forces Analysis.
The model comprises five forces that are mentioned below:
Forces Impact
Bargaining power of suppliers The impact of high bargaining power of the
suppliers is decreased profitability due to high
cost of production.
Bargaining power of customers: There are less supermarket retailers as
compared to the buyers in the market.
Threat of New entry The force of new entrants is weak. This giant
supermarket operates at large scale which
makes their cost of production low, providing
the company a competitive advantage in terms
of its low prices.
Threat of substitutes This factors makes the force of this
component high. This can be handled by
creativity and innovation in Sainsbury's
product range.
Rival firms These supermarket retailers provides cut throat
competition to the company in terms of prices,
products, services. This makes the force of this
component is high.


2) Resources and key competencies of Sainsbury
Strength Weakness
1. It is one of the largest supermarket chain in
UK providing its products and services to large
number of customers.
1. Rise in the food prices have a great influence
on the business of Sainsbury.
2. It provides high level of satisfaction to its
customers.
2. It is a low marketing food business.
3. Sainsbury have highly skilled workforce 3. Tough competition withing every segment of
retail sector
4. The company is having strong brand
portfolio.
4. Difficulty in operation due to impact of
Brexit
5 Product differentiation is one of its strength 5. Employee turnover
6. Advanced technology 6. Rigidity in organizational structure
Strategic capabilities refers to the ability of organization which contribute to the long
term competitive advantage. These capabilities help organization in gaining competitive
advantage which assist them to achieve their goals and objective effectively and efficiently. The
resources of Sainsbury consist of physical, and financial and human resources. This assist in
providing the firm with competitive advantage towards its competitors. There are two types of
resources tangible and intangible. Tangible resources of Sainsbury consist of building,
machinery, furniture etc. financial resources of Sainsbury includes capital, cash, shareholders etc.
human resources includes employees and workforce of organization. Intangible resources of
Sainsbury consist of patents, goodwill, customers database etc (Glavas and Mish, 2015).
VRIO framework Sainsbury
It is a resource oriented analysis which is based on assumptions that the resources can
provide competitive advantage to the organization.
Resources and
capabilities
Value Rare Imitation

Ability to expand
into global market
Yes No Yes
Financial
resources
yes No Financial resources are available to
all the competitors present in the
industry.
Customer
network and
loyalty
yes yes None of the competitors are able to
Imitate the customer's loyalty of
Sainsbury.
Use of technology
to promote the
product and
services
yes No Yes this technologies are available
for all the firms in the industry thus it
is easy to imitate.
Pricing strategy yes No Imitated regularly in industry
Strong brand
image
Yes Yes NO
 Ability to expand into global market : It means the organization have the capability to
enter into different market to grow its market share and profitability.
◦ Value : It will create value for its customers as it will be able to reach a larger number
of customers through entering new market.
◦ Rare : It is not rare because many organization involved in the retail sector are
entering the global market ton enhance their profitability and market share.
◦ Imitation : Yes it can be imitated because many of the competitors in order to gain
competitive advantage use this strategy of entering into global market.
◦ Organizational competence : Company can achieve a competitive advantage
through this which will assist in providing competence to the firm. It is capable of
expanding into global market with its products and services with its knowledge and
skills of the firms to cope up in different environment.
 Financial resources : The financial resources consist of capital, cash etc.

◦ Value : It creates value for the customers because the financial resources assist the
firm in developing their product and services which assist in attracting
customers and creating value for them.
◦ Rare : The financial resources of Sainsbury are not rare because these resources are
used by its competitors also for performing their various operations.
◦ Imitating : these resources are available to all the competitors and thus it is imitated
by competitors to gain competitive advantage in the industry.
◦ Organizational Competence : Organization is not able to gain competitive
advantage through these resources because these resources is available with every
competitors. The competitors such as tesco etc have the accessibility to fund their
operation through the use of various financial resources which are available with
Sainsbury.
 Customer network and loyalty : It means the organization ability to connect with its
customers to provide them various products and services of organization.
◦ Value : The customers of the Sainsbury contribute more than the sales revenue.
◦ Rare : Sainsbury have invested in order to build strong customer loyalty.
◦ Imitation : The competitors have tried to build customer loyalty but are not ab;e to
successful.
◦ Organizational Competence : The organization have strong management system
which assist in achieving these resources and capabilities. Sainsbury have the
capability to connect with its customers by providing by high quality products to
them which assist in gaining their trust.
 Use of technology to promote its products and services : Using technological tools for
promotion of the products and services assist in proving the firms with competitive
advantage towards the competitors.
◦ Value : Yes it creates value for its customers because through use of technology
Sainsbury is able to
◦ Rare : Using technology for various promotional activity is common in the in
industry to attract customers towards the organizational products and services.
◦ Imitation : The imitation of the technology is easily possible because the technology
is available for all the competitors and they can use this strategy for increasing their

customer base to gain competitive advantage towards Sainsbury (Chereau and
Meschi, 2018).
◦ Organizational competence : Sainsbury by using the technology can create
competitive environment to achieve its organization objectives. Sainsbury is using the
latest technology for reaching its customers such as social media sites etc. which will
assist in gaining competitive advantage towards their competitors.
 Pricing strategy : The pricing strategy includes the prices of the products which is
charged by Sainsbury to attract customers towards organization.
◦ Value : The pricing strategy of Sainsbury creates value for the customers because it
provides products and services which are worthy the products and services of this
organization.
◦ Rare : The pricing strategy of Sainsbury is common because many organizations in
the industry are using pricing strategy ton attract customers towards their organization
(Wang and Yeung, 2017).
◦ Imitation : Pricing strategies are regularly imitated in the industry.
◦ Organizational competence : Sainsbury is competent enough to use its pricing
strategy which will assist in gaining competitive advantages towards its competitors.
Pricing strategy use by Sainsbury provide them competency against their competitors
which assist in increasing the profitability of firm.
 Strong brand image : The organization is a leading supermarket in the UK which have a
strong brand which assist in increasing their profitability by attracting more customers
towards the firm.
◦ Value : Sainsbury have strong brand image which create value for its customers and
helps in attracting more customers towards the brand.
◦ Rare : It is rare because the brand image of Sainsbury is not common in the industry
as it is a leading supermarket in UK with large number of customers.
◦ Imitation : The brand image of Sainsbury cannot be imitated by the other
competitors because it developed through its effective performance in the
market and through providing better services to its customers.
◦ Organizational competence : Sainsbury is capable of using this capability to gain
competitive advantage which will assist in increasing profitability and market share

of Sainsbury. This will help in providing competitive advantage to the firm as strong
brand image of company is a strength which is acquired through their skill and
knowledge.
Company's recent strategy
Sainsbury has recently merged with Asda. The two giants of the UK has come together
for reaping the benefits of each other's strength. It's not an equal merger as Sainsbury is going to
retain the control of the merged business (Nelson, 2018). The head of Sainsbury said that its real
concern is the competition from the online giant called Amazon. The company's head also said
that its previous acquisition of Argos was primarily for standing still against its biggest threat
and competitor Amazon. Rapid evolution of technology has made such discounters to grow its
business enormously in the global market. This is one of the reason why these traditional
supermarket retailers have decided to join hands for repositioning themselves in the market for
combatting the increasing threat from Amazon (Sainsbury’s Asda £51bn combination play: what
we know and what it means, 2018).
Company's this strategy could be evaluated by applying SAFe criteria. The criteria
involve three components upon this strategic management strategy of merger between ASDA
and Sainsbury would be analysed. These component are :
Suitability : This component states that whether the strategy is suitable for meeting the
expectations regarding the merger strategy. The suitability factor itself has different criterion
what are important for the organisation like expectation suitability, environmental suitability and
capability suitability (Yeh, 2016).
For example, does the merger between these retailers would help them in combatting the
threat from Amazon? This is expectation suitability. If the resources and capabilities are merged
effectively, these supermarket giants would be able to meet its expectation of surviving the
competition in the market. The merger strategy if analysed and implemented properly would help
them to synergise their strengths and capabilities, leading economies of scale, greater revenue
and larger market share. If the strategy did not meet the expectation of both the companies of
facing threat of cut throat competition from online discounters, it would make the merger failure
leading to detrimental effects on the earning and stability of these retailers. Another negative
effect of such merger would result into reduction in healthy competition in market which is
necessary for both the firms to growing and expanding (Vashisht, 2016).

The strategy is suitable because when such supermarket giants comes together, they
benefit from the synergies, their vast resource and excellent brand recognition and for facing
intense competition.
Acceptability : This aspect of the merger strategy states the measurement of risk, return
and reactions of different stakeholders regarding the merger of Asda with Sainsbury. Returns are
measured based on the combined performance of the companies for a particular period. The
returns could be financial as well as non financial depending on the stakeholders. Such return
could be measured by applying different techniques such as profitability analysis of combined
results, cost benefits analysis etc. Risk is associated with every type of corporate strategy. The
failure of strategy would result into the financial losses for mainly for the Sainsbury as it has
made huge investment. This aspect has to be significantly considered. Risk can be measured by
the way of impact of merger on the liquidity of both the retailers, break even analysis, etc
(Evaluating Strategic Options Using SAF Strategy Model, 2019).
The corporate strategy of merging with Asda is acceptable because it is necessary for
tackling the competition from online grocery firms, for reaping the benefits of economies of
scale and for enlarging their market share in the by repositioning themselves.
However, the proposed merger is facing challenge from the competition watchdog. The
authorities are investing whether the proposal is a strategic decision or it is made for hampering
the healthy competition in the market. The competition watchdog authorities have said that their
priority in investigation is finding out whether after the merger, the customers will face higher
prices or inferior quality products and if it has the potential of affecting consumers in that way,
then to prevent the companies from merging with each other (Villas-Boas and et.al., 2016). It is
basically examining the necessity and purpose of merger between these two companies.
Feasibility : This component of SAFe criteria relates to the feasibility of the strategy.
This element asks whether the organisation have resources, aptitudes and capabilities for puling
the corporate decision of merging with another firm. Being the giants in the supermarket
industry, ASDA and Sainsbury both have the resources and capabilities of implementing this
strategy. Financial feasibility of the merger strategy has to be assessed whether this merger
would generate desired cash flow, forecasting and analysis of the cash flows that could the
influence the profitability and stability of the both the companies post the implementation of the
proposed strategy (Juma, Minja and Mageto, 2016). For example, after the merger, their

combined market share would be 31% which would help it in overtaking the market leader
psosition of Tesco who have 27.7%. Asda and Sainsbury post merger would control 60% of
groceries sales in UK. This will lead to greater income for the organisations in the future
(Sainsbury's-Asda merger in doubt over 'extensive competition concerns', 2019)
Thus, from the evaluation of the above strategy of Sainsbury of merging with the Asda
for the purpose of the handling the increasing competition from the online discounters especially
Amazon. Sainsbury have even vowed on reducing the prices post the merger with Asda for
repositioning themselves in the market across the country.
Results of Merger and Acquisition of Asda and Sainsbury's
Government didn’t allow them and this merging is not happening, so if ASDA and Sainsbury's
go through merger they face many challenges which are as follows-
 Cultural Clash: Different firms have different cultures as it happen in merger. But the
difference in cultures can be problematic and it might become one of the biggest reason
for failure of cultural clash.
 Loss of differentiation: Avoid mergers when the features and benefits that make one firm
valuable are not relevant to the other brand. Rather than add critical assets, capabilities or
value, the acquired or merged firm dilutes the brand and competitive advantage.
 Loss of brand strength: It night be happen that the strength of brand image as customers
will confuse and brands loss there names and reputation in the market place.
CONCLUSION
From the above study it has been concluded about corporate strategies of Sainsbury
which provide understanding to the company to perform its various operation through the use of
strategies formulated. From the internal analysis an understanding of the factors which affect the
business of Sainsbury was achieved. The company by use of Pestle analysis is able to identify
the factors which affect the business environment like political conditions in the country affects
the business of the company. Moreover, it has provided understanding of the resources and
capabilities through use of VRIO framework which consist of value, rare, imitation and
organizational competence. It was concluded that customer loyalty and distribution network is
the capabilities which is valuable, rare, inimitable that provides a competitive advantage to the
company over other in the market.

REFERENCES
Books and Journals
Chereau, P. and Meschi, P. X., 2018. Defining Strategic Positioning. In Strategic Consulting .
(pp. 39-79). Palgrave Macmillan, Cham.
Fleisher, C. S. and Bensoussan, B. E., 2015. Business and competitive analysis: effective
application of new and classic methods. FT Press.
Glavas, A. and Mish, J., 2015. Resources and capabilities of triple bottom line firms: going over
old or breaking new ground?. Journal of Business Ethics. 127(3). pp.623-642.
Juma, G., Minja, D. and Mageto, J., 2016. The impact of strategic thinking on organisational
performance: a case study of uchumi supermarket limited. International Journal of Supply
Chain Management. 1(1). pp.75-94.
Kolk, A., 2016. The social responsibility of international business: From ethics and the
environment to CSR and sustainable development. Journal of World Business. 51(1).
pp.23-34.
Laudon, K. C. and Traver, C. G., 2016. E-commerce: business, technology, society.
Nelson, T., 2018. Mergers and Acquisitions from A to Z. Amacom.
Prajogo, D. I., 2016. The strategic fit between innovation strategies and business environment in
delivering business performance. International Journal of Production Economics. 171.
pp.241-249.
Vashisht, A., 2016. Supply chain management in organized retailing A study of leading
supermarkets and departmental stores.
Villas-Boas, S. B and et.al., 2016. The Impact of Retail Mergers on Food Prices: Evidence from
France.
Wang, F. and Yeung, D., 2017. How to expand and retain the customer base for a supermarket.
Yeh, Y. P., 2016. Market orientation and service innovation on customer perceived value: The
case of supermarket retailers. Management Research Review. 39(4). pp.449-467.
Zhang, C. Q. and Yang, J. J., 2017, February. The Exploration of Competitive State in
Electricity Retail Company under the Background of New Power Market Reformation.
In 2017 2nd International Conference on Humanities and Social Science (HSS 2017).
Atlantis Press.

Online
What is a PESTLE Analysis and how can it help. 2015. [Online]. Available through
<https://www.murphymarketing.ie/what-is-a-pestle-analysis/>
Evaluating Strategic Options Using SAF Strategy Model. 2019. [Online]. Available through
<https://blog.oxfordcollegeofmarketing.com/2018/02/25/evaluating-strategic-options-
using-saf-strategy-model/>
Sainsbury’s Asda £51bn combination play: what we know and what it means. 2018. [Online].
Available through <https://www.thegrocer.co.uk/sainsburys-asda-merger/sainsburys-and-
asda-mega-merger-what-we-know-and-what-it-means/566476.article>
(Sainsbury's-Asda merger in doubt over 'extensive competition concerns'. 2019). [Online].
Available through <https://www.theguardian.com/business/2019/feb/20/sainsburys-asda-
supermarket-merger-cma-competition>

APPENDIX
Political factors: Political factors such as political stability, trade regulations in the country,
corruption level at the bureaucratic level, government's relations with neighbouring countries'
taxation policies etc., greatly affects the consumer goods industry in the country. Sainsbury's
business would be affected in the case of strict trade regulations, high corporate tax etc. For
example, after the Brexit, there will be changes in the current trade laws as government would no
longer be obliged to follow EU directives. Such changes could impact the operations of company
in the future. Favourable trade laws would provide organisation an opportunity of expanding
globally in the most emerging economies of world through online ventures and collaborations.
Economic factors: Countries economic parameters such as unemployment, per capita
income, GDP, economic growth rate, interest rates, inflation rate affects the industry's
operations. Sainsbury's business would be affected when inflation rates would increase would to
decrease in the purchasing power of the consumers. For example, when prices of labour
increases in the inflation, cost of production also increases. Therefore, it becomes challenge for
the company in maintaining low prices of the products.
In such situations, Sainsbury would have to keep its products at low price for surviving in the
market. The company could expand its operations in the emerging markets of the world for
neutering the effect of home country. For example, India could be a huge market for the
company for expanding its operations as it is one of the emerging economies of the world.
However, there will be a threat of facing intense competition from other supermarket chains in
the country
Social factors: Customers preferences never remains constant. It changes with the
passage of time. For example, customers nowadays likes to have everything available under one
roof due to lack of time resulting from hectic work schedules. Sainsbury fulfils this preference of
customers by making everything from clothing to food available under one roof. It is an
opportunity for the company for by Diversifying its product range that could be sold under one
roof.
Another social factor is increasing population of working females in the country who do
not get time to real meals for the family. Sainsbury grabbed this opportunity by offering quick
food that could be easily cooked at home, saving time of these segment of market. Constantly

changing preferences of the customers is a threat for the company because making modifications
in the business as per the need of customers is a difficult task for the firm.
Technological factors : Level of technology adapted by firms in the industry impact the
functioning of Sainsbury. For example, employing AI in customer support services, online
delivery of goods and services, integrated management systems within the organisations are
some factors that can help the company in enhancing its productivity and achieving
organisational objectives (Laudon and Traver, 2016).
However, there is threat associated with rapid obsolescence of technology. Employing
technology involves great cost and technological changes makes it difficult for company to make
such changes regularly. Also, excessive use of technology would lead to loss of job for the
workers.
Legal factors: Employment laws, health and safety standards, food regulations, trade
laws, consumer protection are some legislations that directly influences the strategies'
formulation decision of the Sainsbury. For example, employment laws include compensation to
employee in the event of employee layout has been perfectly adapted by Sainsbury in its
employee benefits policy. Adherence of laws properly would help the organisation in avoiding
penalties and fines. It would help it in creating an image of fair employer in the market. Strict
and changing laws of health and safety is a threat for the company. For example, change in the
law that provides the provisions of edible ingredients in the production of food can affect the
opeartions of the organisation.
Environmental factors: Environment sustainability shall be one of the prime objective of
any company. Conducting business activities in the most social responsible manner would attract
the attention of customers, investor, society in general. Sainsbury's CSR policy involves Reduce,
Reuse and Recycle that efficiently helps in its waste management and efficient packaging
mechanism (Kolk, 2016).
By being more socially responsible, it would help it in gaining more acceptance from
society, that would lead to an opportunity of increasing sales. Complying of environment laws
would it in avoiding government's interruptions in the operations. Non adhering to the laws and
regulations of environmental preservation would make the company suffer penalties and charges.

Porter's five Forces
Attractiveness of industry could be known by undertaking Porter's five Forces Analysis.
The model comprises five forces that are mentioned below:
 Bargaining power of suppliers : There are some dominant suppliers in the market who
have the high force of affecting the business of the retailers. The impact of high
bargaining power of the suppliers is decreased profitability due to high cost of
production. The retailer can tackle this force by experimenting different suppliers and
making a pool of supplier who are ready to provide the raw materials at the most
competitive prices.
 Bargaining power of customers: There are less supermarket retailers as compared to the
buyers in the market. This makes the force of this factor low. Buyers have no control over
the prices of the company. This means that product of the Sainsbury is highly
differentiated from its competitors that makes it difficult for the buyer to switch from one
firm to another.
 Threat of New entry : Entering into this industry is tough as it involves huge capital
investment, government's regulations regarding food and safety and barriers from
established supermarket giants. In this sense, the force of new entrants is weak. This giant
supermarket operates at large scale which makes their cost of production low, providing
the company a competitive advantage in terms of its low prices. These economies of
scale are hard to achieve by the new firms in the industry.
However, Sainsbury can not take this aspect for granted and have to keep an eye on new
firms because when they enter into market always brings something fresh and innovative for the
customers and for entering easily in the market, they initially keep their prices low. If the new
firms enters with such factors, it s threat in the future (Zhang and Yang, 2017).
 Threat of substitutes : Small vendors providing the same products are threat to
Sainsbury because the price of supermarket products are generally higher than small
vendors. The company can tackle this by making its products highly unique, of supreme
quality and offering the same at the most competitive prices.

Also, other firms in the industry are offering the products that have similar features which
could substitute Sainsbury products. This factors makes the force of this component high. This
can be handled by creativity and innovation in Sainsbury's product range.
 Rival firms : There is intense competition in the market from Walmart, M & S,
Morrisons, Waitrose, Tesco. These supermarket retailers provides cut throat competition
to the company in terms of prices, products, services. This makes the force of this
component is high. For example, change in the prices of products by one firm will have
effect on Sainsbury's products. The organisation will also have to change its prices
according to the market trends.
Thus, from the above analysis it can be seen that retail super market industry is attractive
in terms of large customers, suppliers, less threat of new entrants but have a concerns over stiff
competition from small and big firms selling similar products. (Fleisher and Bensoussan, 2015)