Unit 32 Business Strategy: Sainsbury's Internal and External Analysis

This report provides a comprehensive analysis of Sainsbury's business strategy. It begins with an introduction outlining the report's objectives and the company's background. The main body delves into the influence of the macro environment using PESTEL analysis, examining political, economic, social, technological, environmental, and legal factors affecting Sainsbury's operations. The impact of the internal environment is then assessed through a SWOT analysis, identifying the company's strengths, weaknesses, opportunities, and threats, followed by a VRIO framework analysis to evaluate resources. Furthermore, the report applies Porter's Five Forces framework to analyze the competitive landscape within the retail market. Finally, a strategic management plan is devised, integrating the findings from the preceding analyses to recommend strategies for growth and development. The report concludes with a summary of key findings and recommendations, supported by cited references.

UNIT 32 BUSINESS
STRATEGY

TABLE OF CONTENTS
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
LO1.............................................................................................................................................................3
Influence of macro environment..............................................................................................................3
LO2.............................................................................................................................................................6
Impact of internal environment................................................................................................................6
LO3...........................................................................................................................................................10
Porter five forces...................................................................................................................................10
LO4...........................................................................................................................................................13
Strategic management plan....................................................................................................................13
CONCLUSION.........................................................................................................................................19
REFERENCES..........................................................................................................................................20

INTRODUCTION
Business strategy is primarily mixture and blend of various decisions as well as the series
of activities which organizations undertake for accomplishing the long-run as well as short-term
objectives. In the nutshell, business strategy is a well-through business plan which highlights the
set of decisions taken by organizations for achieving their vision and goals. The main aim of this
report is to analyze the external and internal environment of Sainsbury and devise strategies for
growth as well as development.
Sainsbury is predominately renowned retail and supermarket organization being
established in 1869 by John James Sainsbury and headquartered in London, UK.
This report provides an overview of influence of macro environment, impact of internal
environment, Porter five forces and strategic management plan.
MAIN BODY
LO1
Influence of macro environment
PESTEL Analysis
PESTEL analysis is basically the framework as well as tool which is being used by
organizations for evaluating the various external factors that impacts their overall operations and
functions.
Political factors
These political factors consist of political stability, tax rate, trade restrictions, corruption
etc.
Negative impact- Since the emergence of Brexit, there has been a frequently change in the
government in UK. This has eventually led to high rate of corruption and criminal activities in

UK. This has a negative impact on operations of Sainsbury as it has become difficult for the
organization to operate in such high corruption.
Positive impact- Due to the impact of Brexit, trade restriction in UK has been reduced and
government has reduced the overall tax on trading. This has impacted Sainsbury in positive way
resulting in free trade movement of various goods and services (Obeidat, Al-Hadidi and Tarhini,
2017).
Economic factors
The economic factors mainly comprises of economic growth, exchange rates, interest
rates, unemployment rates, disposable income etc.
Negative- Due to Brexit, interest rates in UK has increased from 34.5% to 65.3%. This rise in
interest rates has been due to high level of inflation and economic instability in UK. This has
affected Sainsbury in negative way as it has become difficult for the company to take loans and
borrow funds from financial institution for its various operations like expansion.
Positive- The employment rates in UK has eventually increased from 23.5% to more than 34.9%
due to the presence of various facilities and peaceful relation of UK with neighbouring countries.
This has influenced the operations of Sainsbury in positive way as it has provided company with
highly skilled and experienced workforce (Angeloska-Dichovska and Petkovska-Mirchevska,
2017).
Social factors
There are various social factors like lifestyle, health consciousness, attitudes, cultural
barriers etc.
Negative effect- People nowadays have become highly conscious towards their culture and thus
want products and services which supports their beliefs and values. This has impacted Sainsbury
in negative way as it has become difficult and challenge for company to offer products and
services that supports each and every culture.
Positive effects- The growing demand of people towards healthy eating and food products have
impacted the Sainsbury in positive way. This high demand and consciousness of people for

healthy food have eventually increased the sale of its packaged and organic food products. This it
has eventually increased its overall profit margin.
Technological factors
Technological factors mainly encompasses innovation, automation level, online power of
consumers, R&D activity etc.
Negative impact- The emergence of advanced technology like artificial intelligence has affected
company in negative way. The increasing hacking and criminal activity due to use of technology
in Sainsbury has posed a great challenge for company to protect the information of their
customers, employees and company.
Positive impact- Due to the advent of recent and advanced technology like artificial intelligence,
robotics work of Sainsbury have reduced and this has eventually help the company to expand
their capacity. For example- use of Google analytic have enabled Sainsbury to extract as well as
classify the data and information according to different market and customer segment (Akter and
et.al.,2016).
Environmental factors
Climatic change, weather, environmental policies, etc comes under the environmental
factors which have a great impact on organizations.
Negative- There has been a great pressure on Sainsbury from various organizations as well as
NGOs to react in the socially responsible manner. This has affected the operations f company in
negative way as Sainsbury faces various ethical issues regarding treatment of animals. This has
eventually decreased sale of belts and cloths made from animal skin.
Positive- The growing awareness of people towards reducing waste and use of plastic has
affected the company in positive way and has influenced its functions to a great level. The
increasing consciousness of people towards paper products has eventually increased the sale of
products of paper packaging. Besides this, it has also increased the sale of its paper bags and
containers (Ross, Beath and Sebastian, 2017).
Legal factors

These factors mainly consist of discrimination laws, consumer protection law, patents,
health and safety laws etc.
Negative impact- As company has its operations and stores in large number of countries thus
Sainsbury remain exposed to various legislation and laws of different countries. This mainly
impacts the operations of company in negative as it becomes difficult for the company to analyze
legislative framework of various locations.
Positive effect- The government have introduced the new sugar tax which mainly aims to
decrease the sugar content within various sugary drinks to more than 20%. This has affected
company in positive way as this decrease in overall tax has eventually resulted in the import and
export of its food products across the world.
M1
Macro environment consist of external factors which influences the strategic decisions
and strategies of organization. PESTEL analysis provides a great tool for analyzing macro
environment which has helped Sainsbury to take effective decisions. For example- the various
political factors shows that the less trade restrictions have helped company to trade freely across
the countries. The economic factors revealed that the high interest rates in UK have posed a
challenge for company to take loans for its various operations. While the increasing health
consciousness of people has eventually increased the sale of its organic food items (Baraibar‐
Diez, Odriozola and Fernández Sánchez, 2017).
LO2
Impact of internal environment
SWOT analysis
SWOT analysis is predominately the framework as well as tool which is being used by
organizations to identify their strengths, weaknesses, opportunities as well as threats. This is
usually the strategic management tool which assists organizations to assess various internal
factors that have a bearing on their operations.

Strength
The major strength of Sainsbury is its great brand awareness and brand recognition.
Sainsbury from past few years have gained a great goodwill in the market and thus have enlarged
its customer base to high extent. This in turn has led to high brand awareness which has become
the great strength of Sainsbury. Another major strength of this company is its expansion moves.
From the small grocery outlet and store, Sainsbury have expanded its business to wide range of
product categories and thus have started dealing in various merchandise categories. This is
strength of Sainsbury has helped the company to grow in larger markets and thus have enabled
them to cater the needs of different customer segment. One more strength of Sainsbury is its
strong supply chain. Sainsbury has invested a huge amount in building and creating a great
supply chain and thus its suppliers are available in various countries serving different needs. This
strong supply chain has allowed company to enter the new markets with greater effectiveness
and thus have helped them to enlarge their customer base (Weng, 2020).
Weakness
The major weakness which has dominated the operations of Sainsbury is its low margin.
In order to survive in this cut-throat competition as well as attract the customers, Sainsbury has
endeavored to cut down the costs and thus have decreased prices of most of its products. This has
posed a great impact on its overall profit margin and revenue ratio. Another major weakness of
Sainsbury is its high brand switching. Due to its high and great brand switching, Sainsbury
mainly faces a high amount of risks which seems to be challenging for Sainsbury. One more
weakness of Sainsbury is its low investment in the research and development. Company is
mainly spending below average in R&D due to which its innovation intensity is not high and
thus lack behind in terms of bringing innovation in products and services. Also due to low
innovation, company is not been able to compete with its key competitors. One most important
weakness of Sainsbury is its high attrition rate and high turnover rate (Cubas‐Díaz and Martinez
Sedano, 2018).

Opportunity
The major opportunity which is being available to Sainsbury is increasing the investment
in research and development. Company has the opportunity to bring innovation in its products
and services. Company can spend huge amount in research and development and thus can bring
great innovation in order to enlarge its customer base as well as cater the needs of different
market segment. Another golden opportunity which is being available to company is developing
new marketing and sales channels. Company can invest the huge amount for opening new sales
channels as well as enter the new market segment. Opening the new sales channel will also
enable the company to enlarge its customer base and hence serve the needs of customer through
advanced technology. One more opportunity which company can take benefit in order to gain
competitive advantage and establish position in market is expansion in the rural areas. As
nowadays, even the people in villages have become brand –oriented and thus like to wear and
use branded products. Therefore, Sainsbury have the well-through opportunity to extend its
supply chain in the villages and open the stores in remote areas (Baraibar‐Diez, Odriozola and
Fernández Sánchez, 2017).
Threats
The major threat which might affect the operations of Sainsbury is the fierce and growing
competition. In order to gain the competitive advantage and establish position in market each and
every organization are in the race and thus this has resulted in the emergence of intense
competition. Thus, Sainsbury can face brunt and high competition from its key competitors like
Tesco, Asda etc. Another threat is frequently changing legal regulations. As company operates in
more than one country thus company may be exposed to numerous liability claims as well as
legal regulation which might affect the functioning of company in negative way. Another
important threat which might hinder operations of Sainsbury is the new technologies being
developed by various competitors. This might result in long term challenge for company (Song,,
2017).

Illustration 1: SWOT analysis
(SWOT Analysis: What It Is and When to Use It, 2019)
TOWS
Strength/
opportunities
Weakness/opportunities
Great brand awareness Innovation
Strengths/Threats Weakness/ Threats
New and advanced
technologies
Low investment in research
and development
VRIO framework
This is predominately the framework and comprehensive tool that assists organizations
for assessing their internal resources and strengths which helps them to provide competitive
advantage.
Capabilities Valuable Rare Inimitable Organization
Local food
products
Yes No No No
Distribution
network
No Yes No No

Patents No No Yes No
Employees No No No Yes
M2
The SWOT analysis provides a detailed examination of the firm’s internal capabilities as
well as helps to evaluate the internal factors which impact its operations. Through this SWOT
analysis, Sainsbury have come to know that their major strength is increasing brand awareness
and diversified product categories. On the other hand, the most important weakness of the
company is their high attrition rate as well as low investment in research and development which
has reduced their innovation capability. Another weakness of the company is its high level of
brand switching which has increased their risk (Song,, 2017).
LO3
Porter five forces
Porter five forces is basically the framework which helps the organizations to analyze
competition within the market. In nutshell, this is the tool which organizations use to identify
intensity of the competition within the industry as well as its profitability level.
Threat of the new entrants
This is one of the major force which has influenced the retail industry to high extent. This
is basically the threat which addresses the probability of the entry of various small organizations
within specific industry. Usually the threat of new entrants is low and much weak for Sainsbury
due to high requirement of capital. For entering the retail industry, a large amount of investment
as well as capital is required for various resources like equipments, outlet, office supplies etc.
Due to the requirement of such high investment it is generally difficult for small entrepreneurs
and companies to enter the retail market. Thus, this makes this force much weak and low for
Sainsbury. Along with this, there is a high intensity of competition within retail market due to
presence of large competitors like Tesco, Sainsbury thus gives no room to the small companies

to prosper and flourish. This also makes the threat of these new entrants low for Sainsbury
(Gupta, 2016).
Bargaining power of suppliers
This is the another major force in this framework. This is basically the extent and degree
to which the suppliers within particular industry are able to drive up the cost of inputs. In short,
this force is all about market of the inputs. The bargaining power of the suppliers within this
retail industry is generally low. As there are large amount of suppliers which are present within
retail industry thus they do not have much control over the prices of good. Thus this makes this
force low and weak for Sainsbury has they can easily switch to other suppliers whenever they
find suppliers are charging high. Besides this, the products being provided by suppliers are less
differentiated and fairly standardized thus this also reduces bargaining power of suppliers. In
order to tackle this problem, Sainsbury can build the efficient supply chain by having multiple
suppliers instead of depending on single supplier (Varadarajan, 2018).
Bargaining power of the buyers
Bargaining power of the buyers is predominately the extent and degree to which
customers are able to drive down the cost of products as well as services. This bargaining power
is generally low and weak within the retail industry. As Sainsbury provides highly differentiated
products and services to customers for catering their different needs thus it becomes difficult for
customers to switch to other competitors and local shops. This eventually makes their bargaining
power low and thus this affects Sainsbury in positive way. Besides this, as Sainsbury is highly
quality-oriented and thus provides quality products to their customers thus this makes their
bargaining power much low. As customers are highly conscious for quality while purchasing
product thus they will not switch to other competitors and willing to pay even high prices for
quality products. In order to overcome the risk of bargaining power of customers, Sainsbury
should mainly focus on the differentiation as well as innovation for attracting customers. Also it
should be more quality-oriented instead of product-oriented (Kueng, Li and Yang, 2016).

Threat of substitutes
This is the threat which addresses the extent to which the substitute products are available
in market and thus solve the needs of customers at low price. The threat of thus substitute
product is primarily moderate for Sainsbury. Although a large number of products of Sainsbury
are highly differentiated but there are still various products whose substitute products are
available in market like food items. Thus this makes this threat moderate. Along with this, the
technology which is being used by Sainsbury is mostly common and thus this also somewhat
raises this threat for Sainsbury. In order to tackle the risk of substitute products, Sainsbury
should invest heavily in research and development for bringing innovation in its products as well
as services (Weinrich, 2017).
Competition in the rivalry firms
This is the another major force and tool within porter five forces which is all about the
intensity of competition within the industry. This force is generally high for Sainsbury due o
presence of high competition within retail industry. The major key competitors of Sainsbury
which are Tesco, Asda have a strong brand awareness as well as brand recognition in the market
thus this have resulted in fierce competition. Hence, this force is strong for Sainsbury. Along
with this, each and every organization are in the race to provide quality products to customers
thus this has also given rise to high competition within industry. This also makes this force much
stronger for Sainsbury. In order to tackle this risk and high force, Sainsbury should focus on
improving its market research in order to recognize the needs and demands of customers more
effectively and thus sustain its competitiveness (Parnell, 2016).
Illustration 2: Porter five forces
(Porter's Five Force,. 2013)