Strategic Report: Sainsbury's Acquisition of Argos - Case Study

This report provides a strategic analysis of Sainsbury's acquisition of Argos, a major event in the UK retail sector. It begins with an introduction to Sainsbury's and its objectives, followed by an external analysis using PESTLE and Porter's Five Forces frameworks to assess the political, economic, social, technological, legal, and environmental factors impacting the business, as well as the competitive forces within the industry. The internal analysis delves into Sainsbury's critical success factors, unique resources, and capabilities, linking these to its competitive advantages. The report then evaluates the acquisition strategy using the SAFe criteria and Ansoff matrix to determine its suitability, acceptability, and feasibility, considering market growth, product development, and diversification strategies. The report concludes with a summary of the findings and references used throughout the analysis.

MANAGEMENT

Contents
Introduction...........................................................................................................................................3
External Analysis....................................................................................................................................3
PESTLE Analysis-................................................................................................................................3
Porter`s five forces –..........................................................................................................................5
Internal Analysis....................................................................................................................................7
Critical success factor-.......................................................................................................................7
Unique resources...............................................................................................................................7
Unique capability-..............................................................................................................................7
Linking to advantages........................................................................................................................7
Evaluation..............................................................................................................................................8
Strategic evaluation...........................................................................................................................8
Evaluation acceptable......................................................................................................................10
Evaluation feasible-.........................................................................................................................10
Conclusion...........................................................................................................................................11
References...........................................................................................................................................12

Introduction
Sainsbury is one of the largest chain listed supermarkets in UK. The company started as a
dairy shop and later on, it expanded in packaged fresh foods. Mainly, it focuses on customer
satisfaction and it always tries to give best experiences of shopping to the customers
(Sainsbury, 2018). The aim of the company is to have a concise and long-term vision to
achieve the objectives. Apart from this, the tactical plan of the company is to become one of
the most trusted retailers in the industry. Main objective of the company is to make the lives
of customers a bit easier according to the demand. The report brings out a discussion on
external analysis, internal analysis, and strategic evaluation on the basis of acquisition of
Argos. This strategic report deals with a purpose of evaluating the acquisition of Argos by
Sainsbury (Sainsbury, 2018). For evaluating the acquisition, the report highlights external
analysis, internal analysis, and also the strategy undertaken by the Sainsbury to acquire
Argos.
External Analysis
Current business operations affects UK`s grocery retailing industry which consists of both
macro and micro environment. Macro level factors affect both Sainsbury and its competitors,
which further affects supermarkets who operates in UK. To analyse the macro level factors,
Pestle framework can be used to identify the future trends in political, social, economic, legal,
technological, and environment that affect the industry and all the individual organisations
(Laffy, and Walters, 2016).
PESTLE Analysis-
Political factors- These factors influence the business operations. After the acquisition
process of Argos, Sainsbury is exposed to several political upheaval, risk, and uncertainty in
UK. Brexit led to Flashed Force due to increasing inflation, declining consumer expending,

devaluation of currency that further coupled with growth depression in regards to wages that
negatively affect the UK`s supermarket sales (Laffy, and Walters, 2016).
Economic factors- Brexit affected the acquisition process of Sainsbury, which turned to
financial headaches especially when it comes to managing with currency hedges and dollar
pricing imports hike up in catalogues. With increasing inflation and economic stagnation that
has depressing wage growth in UK, it is seen that several households have become more
conscious regarding the pricing and modifying their shopping habits in an appropriate way
that ultimately affected profitability of Sainsbury (Laffy, and Walters, 2016).
Social factors- the main reason of the above mentioned changes are due to the shopping
habits that has affected UK`s grocery industry. Moreover, social changes drives grocery
retailing. Many people has abandoned their weekly food shopping, and started preferring to
spend the money for numerous other local convenience stores especially in relation to
internet shopping, and discounters. This situation have affected the Sainsbury`s sales and
profits. IGD forecast shows that supermarket spending will decrease from 73.7billion to
70.8billion for the next five years (Marketingweek, 2016). Whereas at the same side,
convenience grocery sales have been growing and being doubled for the discount retailer.
However, Sainsbury is still at the advantage as it has developed the online food shopping and
operating over 806 stores where the sales have increased nearly 6 percent as compared to
huge supermarkets and those sales dropped by 2 percent (Laffy, and Walters, 2016).
Technological factors- when most business organisations adopt digital revolution and
operate their business online, Sainsbury has never left any trend behind. Sainsbury has
introduced certain digital facilities such as food shopping through online websites and
collecting the services, which the customers place orders online. At last, collect it from their
local supermarket. Inline retail businesses have increased by 80 percent that has further

helped the company to help Sainsbury to cope up with the changes (Allen, Piecyk, and
Piotrowska, 2018).
Legal factors- Sainsbury will imply all the legal compliances for the subsidiary of Argos.
New taxation system “Sugar tax” introduced by the UK government tries to reduce the
content in sugar related drinks by 2020 that will affect the own brand. New regulations ban
the advertisements related to high fat, drink, sugar, and salt products to kids who are under 16
that is introduced in UK and will restrict the promotional and marketing efforts (Faull, 2016).
Environmental factors- Current trends have been influencing the UK`s clothing sector that
includes increase of ethical and environmental aware consumers who continuously demand
organisations to adapt those practises such as recycling the materials for further use and paper
packaging. New environmental trend faces that demand for food retail products has been
increasing due to increasing population so there should be zero probability as increasing food
wastage has become vulnerable and greatest environmental challenge faced by the industry
(Choi, Bolan, Hutchinson, and Mitchell, 2016).
Porter`s five forces –
Bargaining power of buyers- The power of customers’ s extremely high because of strong
competitors such as Tesco, Aldi, Asda, and Morrisons who offer similar product at related
price. This leads to lower the switching cost, empowering the customers to choose among the
available competitors at same level of price. Moreover, many shoppers stay loyal to their
prices rather than switching to the brands, this is because people also have moving to Lidl
and Aldi (Saghiri, Wilding, Mena, and Bourlakis, 2017).
Bargaining power of suppliers-, supermarkets have lower bargaining power because of
availability of so many suppliers of the supermarket retail industry. Moreover, non-compliant
suppliers can be effectively replace with the suppliers that give supermarkets products at
“low price.” Sainsbury`s get products from other suppliers at low possible prices in order to

improve the profit margin which has led to losses at the side of suppliers (Ibrahim, Wang, and
Bourne, 2017).
Threat of new entrants- the threat of new entry is low as the market structure where 69.8
percent of the groceries are controlled by big four supermarkets. Intense competition from
Aldi, Waitrose, Lidl, and Iceland who are trying to get larger market share where new
entrants can not prosper. For example- new entrants have to serve high quality products at
low price to induce the customers to keep away from low cost leaders such as Lidl and Aldi,
which already offers their products at 40 percent discount (Ibrahim, Wang, and Bourne,
2017).
Threat of substitution- the threat of substitutes have been increasing for both food and non-
food items. Sainsbury potential food substitutes come up from other retailers who not only
offers food and drinks but also offers non-food products such as electronics, furniture, and
electronics. For instance- there can their separate departmental stores and non-food retailers
at both small and large scale and distribution to compete with the Sainsbury (Piotrowicz, and
Cuthbertson, 2019).
Competitive rivalry- Sainsbury faces severe competition from big four supermarkets such as
Tesco, Morrisons, and Asda which provide almost same products whether it is clothing, food
items, and electronics. Most importantly, these products incurs almost same level of cost that
induces the customers to shift one brand to other and break the brand loyalty. Therefore, there
is low switching cost (Mladenovska, 2016). This has resulted into cut-throat competition that
enables for huge price wars, product innovation, and intense product advertisement especially
in relation to big 4 competitors. Moreover, the company also faces piercing competition from
the German discounting stores such as Lidl and Aldi, which offers the discounts up to 40
percent on their products that, will reduce the market share. In order to overcome the

competition, Sainsbury decided to collaborate with Asda and acquire Argos to make its
online services more efficient (Mladenovska, 2016).
Internal Analysis
Critical success factor- the reason for its success is that UK`s increasing level of
obesity that is almost 2/3rd of the population is the most crucial point to be considered by
Sainsbury to embrace with half of UK`s population is forecasted to become obese by 2050.
Therefore, Sainsbury should focus on encouraging some healthy habits by incorporating
health foods in their shelves. Therefore, after Brexit, Argos losses have become weakness for
the company. Sainsbury has acquired to enjoy the online platform so that it will be able to
increase its profitability but it has been becoming the losses to the existing company due to
economic turmoil (Espinoza, Zhao, Wilkinson, Tu, Sanger, and Zarkhidze, 2017).
UK`s aging population is another current trend to embrace. The company should work on
winning strategy and retaining the demographics by incorporating different product designs
and shapes that will ultimately attract and retain the aging customers as they always hold 80
percent of wealth as compared to people who are under 65s (Choi, 2016).
Unique resources- Sainsbury has strong integration of all the distribution channels as
its strength provides flexibility to the customers. This strategic channel system is coupled
with various products that has given convenience to the customers, which is another unique
competitive advantage over its competitors (Choi, 2016).
Unique capability- Acquisition of Argos have added to the competitive advantage
especially in the non-food sector. After acquiring, Sainsbury enjoyed increased online sales
with the help of Argos`s delivery services and digital channels. Argos`s unique capability and
the supply is coupled with the first physical delivery and its collection services that has
helped them to gain competitive advantage (Templin, and Gruda, 2016).

Linking to advantages- the retail sector has been becoming strong because of its
major strength. Nearly 18 percent of Sainsbury sales has originated from online sales, which
has coupled with superior delivery services of Argos, which has become competitive
advantage against its competitors (Templin, and Gruda, 2016).
Evaluation
Strategic evaluation- Sainsbury is involved in Argos concessions for its 10 stores. The
company followed a strategy of acquiring and the CEO insisted that the company`s takeover
strategy is to foster the ultimate requirement to serve the customers. In regards to facilitate
the payment of acquisition, Sainsbury proposed to pay through hybrid cash share schemes.
The company proposes to finance the concern through cash by meeting the existing debt
services and other resources (Sainsbury, 2018). Hybrid cash share acquisition of Argos can
be made by paying the equity of newly emerged group that suggests that Sainsbury is trying
to overcome the liquidity issues by certifying that Argos already undertakes some of the
existing risks. Sainsbury puts its argument of acquiring Argos by ensuring that it would
increase the sales; boost the total number of sales to 2,000 by including the concessions and
collecting the advanced entrance to the delivery network by providing the opportunities to
sell the products to the customers to each other (Sainsbury, 2018). The evaluation has to
undertake matrix to evaluate the effectiveness of the strategy adopted-
Ansoff matrix

(Source: Toolskit, 2019)
Employing the Ansoff matrix is important to realise the synergies which arise as a result of
acquisition of Argos points out some of the opportunities for grow in the market, develop in
the market, diversification and product development. Overtaking the Argos can lead to
effective synergy by reducing the cost which would further result in mass production and also
the efficient gains (Faull, 2016). This can reduce the competition threats by enhancing the
market growth. Apart from this, acquisition will boost the Sainsbury market by developing
the market, as these will ultimately lead to easy access to new market, new product line, and
broad product varieties through technological development. Linkage between the links of
Argos and Sainsbury represent a diversification as both the organisation is in same industry.
This will ultimately saves cost by guaranteeing about the resource of several distribution
channels. As diversification relates to future changes that has to be adopted by combined
group (Hobbs, 2016).
The management of Sainsbury realised that Sainsbury is facing several changes due to
penetrating changes in customer shopping habits especially in the retail sector. Therefore,
merging with the Argos would accelerate the strategy by delivering the compelling the
revenue cost synergies on the other side by creating the multichannel proposition and multi-

product by pacing up with the delivery networks, which will further influence the customers
and creates shareholders value (Mcdonald, 2017). Moreover, it is been seen that forty percent
of the UK`s population generally shop from Sainsbury and Argos and this acquisition will
make it easier for the two entities to become close to the Argos stores. Sainsbury continues to
open the concession stores through which this the proposed acquisition is considered to be
successful. Expert says that merging with Sainsbury is pragmatic that will lead to adoption of
strategies that could challenge the shopping behaviour of the customers that has to referred to
as one of the fastest order fulfilling aspect of online (Hope, 2016). Apart from this, Sainsbury
exposed to other non-food items has forwarded its offering by 4 billion euro within a year.
The deal of Acquisition is to be projected in order to finalise in third quarter of the year
presuming that there will be no crucial involvement form CMA. Other concerns which deals
with the retarded lengthy waiting to fulfil the regulatory requirement (Sainsbury, 2018).
There would be a minimal barriers to the Sainsbury`s grocery sales and finally as a result the
company have created the non-business of 6 billion euros. CMA can direct the target market
by determining the non-food goods and services that substantially has affected the acquisition
process. CMA has the authority to prohibit the sales if it decides that it is detrimental to the
customers and oblige Argos and Sainsbury in order to sell the stores in order to minimise the
damaging effect of competition (Hobbs, 2016).
Evaluation acceptable- it is most acceptable because of Argos delivery network.
Moreover, in 2012, Argos committed to recreate its organisation to a digital retail leader by
advancing the technology-based list. Moreover, Argos capitalised 10 million euro in boosting
the delivery services so that it can offer the services at the same day (Marketingweek, 2016).
Evaluation feasible- when Sainsbury declared the interest in Argos and owner of home
based retailer but many retail experts questioned the logic of deals. Sainsbury has already
trialling Argos concessions for 10 of its stores. Sainsbury has offered £1.3 billion to win the

control of the home retail group (Marketingweek, 2016). Online shopping supermarket is
totally different notion in the retail industry especially clothes shopping. It is seen that online
purchases constitute 5 percent of total UK grocery sales that has resulted into low demand
from the department stores. As shoppers never wanted to pay delivery fees. Apart from this,
delivery slots on regular basis is inconvenient. Hence, acquisition of Argos by Sainsbury can
expand the online delivery services by using the Argos existing infrastructure that will
ultimately improve the profitability of the organisation to overcome the challenges and
induce the customers to adopt multichannel grocery shopping approach. Moreover, additional
sales volume will propel the growth in future (Marketingweek, 2016).
Conclusion
As a recommendation, mergers result are not unusual as the principal reason is that corporate
executive is supposed to create effective synergies where the in-depth analysis objective has
to be proved. Sainsbury relying only on profitability is required as opening more concession
stores that can evaluate the success of merging. Sainsbury has to ensure that it retains both
the organisations by its key management. Moreover, the company has to attempt to achieve
the strategies by chopping off the property savings, administrative costs, and legal costs. The
company estimates that Sainsbury and its rivals are always in better situation in guiding the
considerations the crucial operation food. It is important to know that delivery system of the
organisations remained a supporting act, which is being the key to deliver. On the other hand,
the grocery retail market is engaged in price war system that appears to have no pending end.
Argos takeover has to be bid by Sainsbury`s because of effective logistics that will ultimately
help the organisation to safeguard its profitability by serving the customer` needs.

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