Business Environment and Strategic Management

This paper discusses the proposed merger between Sainsbury's and Asda in the UK retail industry. It explores the case scenario, implications, rationale, and effects of the merger on stakeholders. Recommendations are provided to mitigate potential issues.

Running head: BUSINESS ENVIRONMENT AND STRATEGIC MANAGEMENT
Business Environment and Strategic Management
Name of the Student
Name of the University
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Executive Summary
The retail industry of the United Kingdom can be considered dynamic. Sainsbury’s, who have
been established back in 1860, find themselves in a stable position till date which was backed by
their consistent performance. The company expressed interest in merging with Asda, their long
term rivals whose parent company is Walmart. Both the companies showed leeway on the
proposal which has led to a huge amount of speculation in the market. It has been opined by the
highest regulatory bodies in the territory as unfavourable and that it will lead to deterioration of
end user experience. Sainsbury’s lost its share value and there are subject to much more
devastating consequences. The aim of the paper is to enlarge and elaborate on the case scenario,
its implication, the possible rationale and the effects that the event could have on the
stakeholders. Finally recommendations have been provided regarding how the companies can
mitigate the issue that could possibly exist if the event becomes a reality.

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Table of Contents
Introduction......................................................................................................................................4
Case overview..................................................................................................................................4
Findings and Analysis......................................................................................................................5
Implications.................................................................................................................................5
Reasons behind opting for the merger.........................................................................................6
Intense competition..................................................................................................................6
New market opportunity..........................................................................................................7
The Stakeholders.........................................................................................................................8
The employees.........................................................................................................................8
The customers..........................................................................................................................8
Shareholder..............................................................................................................................9
Supply Chain Relations.........................................................................................................10
The external environment..............................................................................................................10
Porter’s five forces model..........................................................................................................10
SWOT analysis..........................................................................................................................11
The ethical issue............................................................................................................................12
The current scenario..................................................................................................................13
Conclusion and recommendations.................................................................................................13
REFERENCES..............................................................................................................................16

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Introduction
Sainsbury’s is a chain of super markets in the United Kingdom. The company was
founded in 1869, and have been responsible for the outbreak of Super market across the United
Kingdom (Alexander 2015). The company has been recognised as one of the first super markets
in the UK and was founded by John James Sainsbury (Alexander 2015). It was the name of the
latter after whom the company was named. The company is based in London, United Kingdom,
with approximately 1400 retail outlets across the United Kingdom (Varley 2014). The company
have also established subsidiaries such as their very own bank. There has been recent discussion
about a merger between Sainsbury’s and another supermarket called Asda. There has been a
great deal of speculation in the topic regarding the causes and implications that this potential
merger can have. The aim of the paper is to develop a proper under understanding of the scenario
that prevails within the company. The following section of the paper will enumerate the key
issue that have been formulated as a result of the same. Furthermore, it will enumerate on the
basic causal effect of mergers in general along with the effects that the merger could have on the
company and its stakeholders.
Case overview
The market of the UK is considered one of the most competitive grocery and
supermarkets in the world (Ochieng et al 2014). This fact was realised by Walmart and they
wanted to offer their subsidiary to Sainsbury. Asda has been also recognised as one of the
leading supermarket specialising in groceries in the market of the United Kingdom (Grundvåg,
Larsen and Young 2014). This proposal was considered by Sainsbury as they saw it as an
opportunity to provide improved services to the consumer community. The former viewed it as

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an opportunity to create a collaborative partnership with a Fortune 500 company while also
trying to capitalise on the expertise offered by Asda. The proposal was deemed to be favourable
by the company and they realised that this would give them access to the supply chain of the
company which could ultimately bolster the performance of the company in providing services
to the community through which the consumers can derive utility. However, the merger could
lead to serious implications such as rise of the cost of service of the products that the final
merger would sell. Thus it has been argued that the proposed merger would have negative
implication such as disapproval of the customer community and loss of the latter’s support.
Findings and Analysis
Implications
The share prices of Sainsbury grew unfavourably by 15% after the information regarding
the merger was announced in public (Sainsburys.co.uk 2019). The Competition Markets
Authority opined that the merger would prove to become unfavourable as the formation of a
merged company will lead to lesser choices that are presented before the consumers in the
market. It can be said the condition of a company in the market is sustained by the response and
nature of behaviour of the consumer community. Thus the response of the consumers and their
behaviour is of key concern of the super markets industry and every other industry that can be
thought of. The Competition Markets Authority is department of the government of the United
Kingdom that deals with activities relating to the competitive scenario within the territory
(Whish, R. and Bailey 2015). The main job of the CMA is to reduce the anti-competitive
activities within the United Kingdom (Davies 2016). Thus their opinion has to be considered as
they are one of the highest non-ministerial regulative bodies of the country. Sainsbury have had
considerably favourable past as per the regulatory body. However the fact that they have not

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been able to cater to the changing markets is evident. The latter is the main reason why the
initiative of the Sainsbury’s and Asda merger is deemed to fail as per the opinion of the CMA.
Reasons behind opting for the merger
Intense competition
Sainsbury’s is one of the oldest supermarket of the country (Azeez 2014). They have
been showcasing decent performance that sustained the existence of the company over the years.
The company have been able to satisfy the consumer community adjacent to the M25 and
customer of the chain mainly consisted of white collar buyers (Fuller 2015). They have been
very clear in justifying the price that the super markets offers to its customers. The rationale
behind selection of such a final price is due to the fact that they have been providing the
customers with superior quality goods. Asda have been a rival to the former company (Ritson,
Byrne and Cohen 2018). They have been competing in the industry form when the two started
co-existing in the same market. Asda supermarkets have been able to secure a considerable
portion of the United Kingdom and posed threats to the existence of Sainsbury. Asda’s were the
company, who were considered as one of the most dominant super markets in the northern region
of the province of the United Kingdom (Monios 2015).
Big American names such as Amazon enter the supermarket industry making life difficult
for the aforementioned super market (Keen and Williams 2013). Moreover, new players such as
Lidi, Aldi and Tesco implied that the companies in contention would be facing considerable
amount of competition in the market (Tse et al. 2016). It can be said that Tesco have been a
company who did not have favourable performance in the past (Page 2014). However, the fact
has been realised that the company have been revamped and they are back in contention. Not
only did Tesco’s new and revamped business policy attract loads of customers from the

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companies in contention, it posed a threat of loss of market share for both the parties associated
in the merger. Along with the emergence of Tesco, Lidi, Aldi and Amazon where also posing
serious threats to the existence of the company. One of the biggest challenges came from the part
of Amazon. The latter where already a world renowned company and they were investing in the
retail industry (Newcombe et al. 2015). Furthermore, they had the advantage in terms of
technicality and ability to use the internet. The company’s internet base was already strong and
they entered the market to expand into the same. It is said that customers have a favourable
response to big brand names. There is no point in justifying the brand image of Amazon.
Emergence of foreign competitor including big name such as Amazon was responsible for the
two companies deciding to merge. It is assumed that the rivals decided to collaborate their efforts
as they saw the emergence of new companies to be threatening their own existence. It can be said
that the delusional thinking of the owners and policy makers of the company were responsible
for going for such an unrealistic decision.
New market opportunity
Sainsbury’s were performing favourably in the market and Asda were not very far behind
(Caritte, Acha and Shah 2015). They companies though that they would be establishing a better
position in the market as a result of the merger. They rationale behind the formulation of the idea
was to establish themselves as a monopoly in the market of the United Kingdom. This fact could
be considered if there were very few or no competition in the market. The companies failed to
realise that the idea of monopoly was a paradoxical idea in a market that is as dynamic the
markets that they operated in. The decision to go for a merger was as a result of lack of research
and market awareness form the part of both the companies. They were unaware of the fact that
their aim of achieving a monopolistic nature could not possibly be realised.

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The Stakeholders
The stakeholders of a company can be identified as the customers, the employees of both
the organisations, their shareholders, the supply chains, partners and the community as a whole
(Lawrence and Weber 2014). All major and minor activities of a company have implications on
the stakeholders associated with any company (Rodríguez et al. 2015). It can be said that
favourable information have positive effects on the stakeholders and the reverse happens in
conditions that are deemed to be unfavourable, ceteris paribus.
The employees
It has been inferred by experts that the merger will result in employee dissatisfaction. As
of 2018, there were approximately 186,000 and 165,000 people employed in Sainsbury’s and
Asda respectively. The merger will lead to a combined workforce and it is assumed that this will
lead to losses of Jobs form the part of the employees. The territory of United Kingdom boasts
one of the highest number of people who are employable (Crisp and Powell 2017). However
there are lack of sufficient employment opportunities. Inevitability of loss of jobs will result in
loss of jobs. Furthermore, it has been found that the pay rates of employees at Sainsbury’s are
considerably higher than the employees of Asda. Thus there might be conflict among the
employees if they have to work in under the same roof. Employees of Asda will demand higher
pay and the ones of Sainsbury’s will be dissatisfied and might even consider to leave if there is a
pay cut.
The customers
Both the companies employ a considerable amount of sales promotional activities
(Adams 2015). They offer a fair and generous amounts of discounts to the consumers. The
merger can result in the combined effect of the discount policies of both the companies. The

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newly merged company could offer the consumers of the companies with increased amounts of
discount and offer additional saving. According to the Environment Food and Rural Affairs
Select committee, the company can aim to offer the consumers with offers that they would not be
able to reject. The companies have declared that there would be savings offerings to the
consumer community. However, one should not be too optimistic about the possibility of savings
as the retail markets are subject to serious competition. One of the senior executives of the
Sainsbury’s declared that the merger will incorporate a considerable amount of savings, however
the customers might have to wait for more than one and a half years before the savings policies
are incorporated. Some can also opine that the efforts the company might not even be able to
sustain itself till then considering the unfavourable facts.
Shareholder
It can be said that the information affects the share markets (Cho, Lee and Pfeiffer 2013).
Favourable information makes people invest in a said share and information of unfavourable
nature leads to reduction of investment form the part of the shareholders. The merger can be
perceived by different shareholders in different manners. The shareholders who might support
the company’s vision of merger decision might offer investment to the shares of the company.
The shareholder who would view the merger as unfavourable would refrain from purchasing the
shares of the company. Effects can be catastrophic if the latter takes place. It has been seen that
the consumers and regulatory bodies have not taken the idea of the merger favourably. The share
prices of Sainsbury’s has already dropped by approximately 15% and that can be mainly
accredited to the opinions passed on by the regulatory bodies such as the CMA. Speculation has
been revolving around the merger and the media has played a vital role in the same, thus this
resulted in reduction of share prices of the company.

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Supply Chain Relations
The nature of the relation that a company has with the members of the supply chain
determine the nature of productivity of the operations that are conducted between the said
business and the supply partner. Asda is a retailer who specialise in groceries, therefore majority
of their suppliers are farms and vendors. They offer other products as well although it can be said
that majority of their revenue is earned form selling groceries and raw fruits and vegetables. On
the other hand Sainsbury are a company who are dealing in products much more diverse than just
groceries or raw vegetables and fruits. Both the companies have different supply chains and
merging can result in clash between the supply partners of both the companies. The companies
are not only subject to loss of relationship with suppliers, however they are also subject to loss of
overall productivity.
The external environment
The external environment for the operations of the company and the merger will be evaluated
using Porter’s five forces model and SWOT analysis.
Porter’s five forces model
Industry Rivalry (HIGH): There exist high amount of rivalry within the industry.
Bargaining power of the buyers (HIGH): Many players within the industry exist within the
market, thus there is varied range that the customers can choose from.
Bargaining power of the sellers (Moderate): Moderate bargaining power since the nature of
the market is similar to perfect competition.
Threat of new entrant (LOW): There is a chance of entrance of competitors. However, existing
players can make existence difficult for the new entrants.

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Threats of Substitutes (HIGH): Increased number of competitors have the capability to supply
similar or partially differentiated products to the consumers. Thus chances of substitutes is high.
Figure: Porter’s five forces model (Source: As created by the author)
SWOT analysis
Strengths:
 Well established in the
market
 Existing customer base
 Brand value
Weakness:
 Lack of market
knowledge
 Lack of innovation
 No CSR activities
Industry
rivalry:
HIGH
Threat of
new
entrants:
LOW
Bargaining
power of the
buyers: HIGH
Threat of
subsititutes:
HIGH
Bargaining
power of the
sellers:
MODERATE

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Opportunities:
 Chance to increase
goodwill by CSR
 Contribution to
Sustainable
development activities.
Threats:
 Competitors emerging
 Competitors offering
better alternatives
 Speculation regarding
merger
Figure: SWOT analysis (Source: As created by the author)
The ethical issue
The above factors make it evident that the decision to operate might not turn out to be as
pleasing as both the companies perceived. It could lead to loss of jobs for employees, detoriation
of relations with the members of the supply chain, decrease in the price of the share that are
offered to the public, loss of goodwill and position in the market. It has been realised that the
implications would be rather negative and there would be hardly any positive outcomes of the
operations.
Not only are the companies failing to take care of their Corporate Social Responsibility
(CSR), the company are also not being able to take care of their relations with the employees,
customers, shareholders and the supply partners. The company have failed to contribute to any
sustainable issues of the society, although they have been successful in doing the reverse. The
policy maker and influencers in the company have failed to realise the prevent issues of loss of
employment, supply chain welfare, corporate social responsibility and customer relations.
Furthermore their negligence poses threat to the existence of the both the companies. The
implications would be catastrophic. Deterioration of relationship with the supply chain would
result in low production, employee attrition might lead to strikes which might further hinder the

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operations of the company, and share prices would fall and result in loss. The company would
suffer in terms of human capital, the company would incur losses in terms of both revenue and
productivity and this would imply that the companies will no longer be able to sustain itself in
the long run.
The current scenario
The new of the merger has shaken the industry as a whole. Experts all over the country
have passed on their opinions regarding the merger. Regulatory bodies have deemed the activity
to be unfavourable from the part of both the companies. Even though the aim of the companies is
to provide a better experience for its customers, it is opined that the merger will lead to
deterioration of the customer’s experience. This will lead to lack of investment in the share of the
company. The merged company will then need to reduce the process of the shares that are
offered to the public. Thus it is evident that the company will incur losses in the near future if
they plan to stick with the idea of the merger. The nature of negative speculation and the
approach of the media has resulted in formation of an unfavourable image of the company in the
eyes of the consumers.
Conclusion and recommendations
Sainsbury has been identified as one of the oldest super market chains in the industry.
The company’s aim to merge with Asda, a subsidy of Walmart has been subject to a lot of
speculation. Both the companies who are supposed to be involved in the merger were fierce
rivals in the market of the United Kingdom. However, the emergence of competition in the form
of companies such as Tesco and Amazon have resulted in formulation of the decision to merge.
Sainsbury decided to collaborate with Asda since they were associated to Walmart, a fortune 500
company and Asda was keen to merge with Sainsbury as a result of their market dominance,

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stability and goodwill throughout the years. Furthermore the companies had a vague idea of
forming a monopoly that might have been possible if the other competitors did not exist in the
market. The merger is assumed to have catastrophic results. Implications include loss of jobs,
rising conflicts among employees, strikes, decrease in the valuation of the shares, loss of share
prices and deteriorating relations with the supply chain. These result would imply that the
company would suffer from lack of productivity and loss of customer base. This will ultimately
result in both the companies going out of business. The latter can turn out to be catastrophic for
the organisations and its stakeholders will also get affected. As discussed above, both the
organisations employ roughly above 350,000 people. All the employees’ positions in the
organisation may fall under jeopardy if the merger takes place. In order to sustain in the long-run
both Sainsbury’s and Asda need their employees and the aforementioned consequence will rule
them out form the possibility of a resurrection. Thus on a concluding note it can be said that both
the companies have everything to lose and very little to gain from the proposed merger. They
should flag the idea in order to avoid the disastrous consequences.
It is obvious, that the merger would lead to unfavourable consequences as mentioned
above. Thus, in order to avoid the aforementioned consequences, both the companies should
follow the following recommendations.
 Market Research: Both the companies were considered to be stable in the market before
they proposed and publicised the idea of the merger. Thus the have the financial backing
to employ individual market research teams in the market. It can be said that the purpose
of market research is to give the companies and the researchers an in-depth idea of the
market (McQuarrie 2015). The companies can get to know the trends of the market and
can also get informed about the external market and business environment. They should

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conduct a SWOT and PESTEL analysis in order to determine the strengths and
weaknesses of the competitors and the opportunities that favour them.
 CSR and Sustainability: The companies should be aware of the fact that CSR and
sustainability activities set companies apart from the competitors. The proposed event led
to a huge amount of speculation and resulted in loss of both the company’s goodwill and
share value. Thus, in order to reinstate themselves in the market, they should invest in
CSR and Sustainable development.
 Operate individually: The analysis has confirmed that the merger will lead to loss both
in material and productive terms. Therefore, the companies should operate individually in
the market, carry out business as usual and offer value to their customers. However, they
can still collaborate their efforts with each other by outsourcing expertise from each
other. This will ensure that they are able to sustain themselves in the long-run.

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