Corporate Strategy Report: Sainsbury's Acquisition of Argos Analysis

This report provides a comprehensive strategic analysis of Sainsbury's acquisition of Argos. It begins with an introduction to corporate strategy and outlines the objectives of the report. The external environment is assessed using PESTLE and Porter's Five Forces analyses, evaluating political, economic, social, technological, environmental, and competitive factors. An industry analysis follows, examining Sainsbury's internal resources, value-chain activities, and VRIO analysis to identify strengths, weaknesses, and core competencies. Finally, the report evaluates the acquisition strategy using the SAFe test, assessing its suitability, acceptability, and feasibility. The analysis covers various aspects of the retail and supermarket industry, including the impact of Brexit, rising income levels, consumer trends, technological advancements, and environmental concerns. The report also considers the bargaining power of buyers and suppliers, the threat of substitutes and new entrants, and the competitive rivalry within the market. The value-chain analysis focuses on inbound and outbound logistics, operations, marketing, sales, and services, and highlights opportunities for cost advantage. The report concludes by summarizing the key findings and strategic implications of the acquisition.

Applied Corporate Strategy
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Contents
1. INTRODUCTION.......................................................................................................................3
2. EXTERNAL ANALYSIS...........................................................................................................3
2.1 PESTLE Analysis..................................................................................................................3
2.2 Porter’s Five Force Analysis.................................................................................................5
3. INDUSTRY ANALYSIS............................................................................................................6
3.1 Internal Resources.................................................................................................................6
3.2 Value-chain Analysis.............................................................................................................7
3.3 VRIO Analysis.......................................................................................................................8
4. STRATEGY EVALUATION.....................................................................................................9
4.1 SAFe Test for acquisition of Argos by Sainsbury.................................................................9
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
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1. INTRODUCTION
Corporate strategy of an organisation outlines the comprehensive goals and objectives of the
company and defined the manner in which goals and objectives are to be attained or
accomplished (Feldman, 2020). The following report is based on evaluation of strategy of
Sainsbury to acquire Argos. Sainsbury is the second largest chain of grocery supermarkets in
headquartered in London, United Kingdom which was founded in the year 1869 (Szydlowska,
2020). The report aims to determine the external environment of the company and identify a
potential strategy for obtaining competitive advantage and core competency for the company.
The report also attempts to evaluate the recent strategy of Sainsbury to acquire Argos using
Suitability, Acceptability and Feasibility test.
2. EXTERNAL ANALYSIS
2.1 PESTLE Analysis
It is a tool or framework of strategic management which is applied by business managers
to monitor and evaluate the impact and influence of external environment factors on the
operations and decision-making within the organisation (Perera, 2017). Factors which exist
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outside the business organisation such as economic condition, market stability etcetera have a
profound impact on business and with the help of monitoring these factors, early identification of
opportunities and threats is possible which increases operational productivity and business
competitiveness. Some of the important external environment factors which need to be
considered by the management of Sainsbury are being evaluated as follows:
Political Factors:
Impact of Brexit: Brexit has proved to be a major threat for the operations and
profitability of Sainsbury. Brexit could result into increased cost of materials and products since
importing affordable materials from European countries will get difficult (Hunt and Wheeler,
2017). Increasing cost of materials will increase the production cost and hence, the management
of Sainsbury needs to push and increase efforts to maintain the level of consumer spending at
increased prices to maintain and enhance profitability of the operations.
Economic Factors:
Rising income levels: Over the past few years, global income level has increased
significantly as a result of increased production and manufacturing activities globally. With the
rising income level, the demand for consumer goods with high quality and luxury goods has
increased substantially which is a major opportunity for the management of Sainsbury to
increase revenue and profitability by offering high quality of goods and services (Diener, Tay
and Oishi, 2013).
Social Factors:
One-stop shopping: One-stop shopping and bulk shopping is one of latest trend in social
consumption behaviour and people nowadays prefer to purchase every essential grocery product
at one place. This presents a huge opportunity for the management of Sainsbury since the
company offers a wide range of products and services in its supermarket stores (Han and et. al.,
2018). By offering incentives on bulk-shopping and diverse shopping, the management can take
leverage of consumer trend of one-stop shopping to maximise revenue generation.
Technological Factors:
Online Shopping: Technological innovation and developments have opened up a new
sales platform for grocery supermarkets i.e. online sales channel which has increased
accessibility to these stores and their products for customers and increased sales potential for the
company (Al-Debei, Akroush and Ashouri, 2015). E-commerce presents a huge opportunity for
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the management of Sainsbury to influence the way customers interact with the company and
purchase products and services. By improving the delivery speed and reliability, management
can leverage the potential benefits of e-commerce technologies.
Data Analytics: With the help of huge avenues and possibilities in data science and
analytics, it has become easier for organisations to understand their customers in a better and
more effective manner. Data analytics present the opportunity to management of Sainsbury to
offer products and services as per the needs of customers and improve the effectiveness of
targeted marketing efforts using distinct loyalty program based on items purchased and average
monthly expenditure (Davenportis, 2014). Personalised shopping experiences present a great
opportunity and have become widely popular.
Environmental Factors:
Sustainability: Increasing consumer consciousness and awareness about the social and
environmental impact of their purchase decisions has influenced the organisations to reduce the
amount of carbon footprints and emissions. It presents an opportunity for the management of
Sainsbury to improve goodwill and market favourability among consumers by taking an early
lead since the company has already committed to investing an amount of £1 Billion for reduction
of adverse impacts on environment to zero level by 2040 (Annual Report and Financial
Statements, 2020).
2.2 Porter’s Five Force Analysis
It is a model which is used to identify and analyse the five important competitive forces
which influence operations in every industry and helps in determination of attractiveness of the
industry (Dobbs, 2014). Determination of the industry attractiveness for Sainsbury is being done
as follows:
Bargaining power of buyers: Customers of Sainsbury have a high bargaining power due to
a high number of firms operating in the industry and low amount of switching costs. High power
of buyers restricts the ability of Sainsbury to dominate pricing and derive high profits as even the
slightest of change in prices is expected to have a significant adverse impact on the demand
(Gabrielsen and Johansen, 2015). Customers are usually more loyal to prices in comparison to
brands and high bargaining power in the supermarket industry is a strong force for management
of Sainsbury.
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Bargaining power of suppliers: Suppliers in the supermarket grocery industry have a low
power since there are many suppliers in the industry and the management of Sainsbury can
replace a supplier with any other supplier in case of non-compliance at low cost of switching
which gives the power to procure materials at the lowest possible prices with high quality and
improve profit margins and profitability (Noton and Elberg, 2018).
Threat of substitutes: In the retail grocery market, threat of substitute products is very high.
Products and services which are being offered by Sainsbury have many alternative products in
the market which include food as well as non-food items including consumer electronics
(Osborn, 2020). It includes local departmental stores and retailers which restrict the ability of
management of Sainsbury to control prices of their products and services.
Threat of new entrants: It is relatively low or insignificant threat for the management of
Sainsbury since the retail supermarket industry in United Kingdom is controlled by four major
giants. These companies operate at a very large scale and obtain benefits of economies of scale.
Hence, for a new firm to enter into the industry with high value proposition for customers at very
competitive prices requires a very high investment that is difficult for new companies to arrange
(Ellickson, 2016).
Competitive rivalry: In the supermarket industry, there exists a very high level of
competition which makes competitive rivalry a high force for the management of Sainsbury.
Competitors of Sainsbury include TESCO, Waitrose, ALDI, LIDL etcetera. Hence, innovation of
product and service, cut-throat price wars and extensive marketing campaigns are common
among the supermarket industry to maintain market competitiveness (Davies and et. al., 2017).
Thus, from the above analysis of Porter’s five force for supermarket industry, it can be
determined that with high bargaining power of buyers, high extent of competitive rivalry and
threat of substitute products, it is difficult and challenging for the management of Sainsbury to
maintain profitability in the industry which requires constant efforts and strategies. Low threat of
suppliers’ power and low threat of new entrants increase the industry attractiveness for
management of Sainsbury.
3. INDUSTRY ANALYSIS
3.1 Internal Resources
Strengths:
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Human resource: Over 1,20,000 people are employed by Sainsbury with high skills and
competencies which is a major strength of the company. The management of the company has
invested a huge amount in training and development of its employees which has resulted in
development and fostering of a team of highly-skilled employees with high motivation to attain
and accomplish organisational objectives (Annual Report and Financial Statements, 2020).
Financial resource: Sainsbury is operating profitably in the supermarket industry for a
long period of time which has resulted into accumulation of a strong base of financial resources
which can be used to invest in business opportunities and provide strength to the management.
Strong cash flow position of the company is an important determinant of the company’s strength.
In the year 2020, the company had total assets worth £27,937 Million representing the strong
base of financial resources (Annual Report and Financial Statements, 2020).
Physical resources: Production and manufacturing units of Sainsbury are equipped with
the latest machinery and equipment and other physical resources which act as one of the biggest
strength of the company. Production capacity of the company is a strength as a result of physical
resources and other materials.
Intangible resources: Sainsbury is among the top 4 supermarket giants in United
Kingdom enjoying a high market share due to the positive image and goodwill of the company in
the market. Goodwill and the strong brand image of company acts as a biggest strength and
advantage which also helps in inducing customer loyalty and attracting more customers.
Weakness:
Technical resources: Although investments have been made by the management of
Sainsbury in technical resources and latest innovative technologies, the resources are not
organised in the most effective manner to provide a seamless and enhance technical experience
to the customer which can foster increased sales and revenue. Reliability and delivery issues with
respect to technical resources of the company acts as a weakness for Sainsbury (Annual Report
and Financial Statements, 2020).
3.2 Value-chain Analysis
It is a tool which is used to determine and analyse the internal activities of the firm to
identify sources of competitive advantage. It helps in identification of activities which are highly
valuable and the activities with scope of improvement (Gereffi and Fernandez-Stark, 2011).
Based on this, the organsiation can decide whether to choose cost-advantage or differentiation
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for improving competitiveness. Value-chain analysis of primary activities with respect to
production, manufacturing and selling of goods and services for Sainsbury is as follows:
Inbound logistics: It includes activities such as procurement of materials, storage of
materials and internal distribution of materials. Sainsbury has a strong relationship with suppliers
and an effective supply-chain management helps the management to procure the best quality of
materials at low prices. With the help of proper inventory management, cost of materials can
further be reduced by the management.
Operations: Sainsbury has streamlined the operations of manufacturing and production to
ensure best quality of goods and products with minimal wastage and optimum resource
utilisation (Aluko and Knight, 2017). This provides an opportunity for the company to reduce the
cost of production by more innovative practical approaches.
Outbound logistics: It refers to the activities which assist in delivering the final goods and
products to the customer such as warehousing, transportation etcetera. With the help of online
sales distribution channel, the management of Sainsbury has reduced the cost of in-store
expenses and the products are made more easily accessible to widely-scattered potential
customers.
Marketing and sales: With the help of effective marketing and promotional strategy using
multi-channels such as offline and online, Sainsbury has been able to differentiate the products
and attract new customers by using sales promotional tools (Stephen and Yakov, 2017). Wise
integration of reduced product costs in marketing campaign of the company can increase sales
and revenue and also help the company to obtain cost advantage.
Services: Post-sales services offered by Sainsbury include customer feedback redressal and
providing high value after the conversion of sales by loyalty programs and sales referral
programs. By improving the effectiveness of customer feedback mechanism as an essential post-
sales services, the management can improve the cost advantage and its effectiveness to attract
more customers.
Hence, based on the value-chain analysis, core competency of Sainsbury can be identified
with obtaining cost advantage through enhancement of its primary activities and leveraging the
strength of internal resources.
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3.3 VRIO Analysis
This is a framework which is used to determine the internal resources and capabilities of an
organisation and identify whether these can provide a source of sustained competitive advantage
for the organsiation (Knott, 2015). For the purpose of establishing cost advantage as a core
competency of the organisation, VRIO Analysis of Sainsbury is being done as follows:
Valuable: Financial resources are essential for obtaining cost advantage and identifying a
core competency of the organisation which are a valuable resource for Sainsbury. A team of
highly skilled employees act as a valuable resource in innovating the existing operations and
procedures. Goodwill of the company is valuable which can be used to promote and attract
customers for cost-effective products.
Rare: Financial resources of Sainsbury are a rare resource which are accumulated as a result
of long period of profitable operations. Employees with high motivation and skills are another
rare resource. Goodwill and positive image is another rare resource established with the help of
providing high quality of products and services.
Imitable: Financial resources and goodwill of Sainsbury can’t be imitated easily by any
other supermarket organisation or new player in the industry. However, employee training and
development is emphasised by every organsiation these days which is an imitable resource
(Karim, Huda and Khan, 2012).
Organised: Physical machinery and financial resources along with the employees and
members of Sainsbury are organised resources which can be used to obtain a source of
competitive advantage and establish a core competency for the organisation.
Thus, it can be analysed that obtaining cost advantage is a core competency for the
management of Sainsbury which can be attained with the help of enhancing operations and
utilising the valuable, rare, inimitable and organised financial, physical and human resources of
the company. With the help of making right investments and team of highly skilled and
competent employees, the management of Sainsbury can establish cost-advantage as a core
competency of the organisation.
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4. STRATEGY EVALUATION
4.1 SAFe Test for acquisition of Argos by Sainsbury
SAF test is a framework for evaluation of strategies which describes three important criteria
of suitability, acceptability and feasibility that must be fulfilled by a strategy for effective
execution. It helps in evaluation of growth strategy prepared by the management of an
organisation. SAF Test for the acquisition of Argos by Sainsbury is being done as follows:
Suitability:
It is used to determine whether the strategy aligns with the strengths and opportunities of
the organisation and can be used to attain the organisational vision and objectives. Suitability of
the strategy of Sainsbury to acquire Argos can be determined in the following manner using
TOWS Matrix:
TOWS Matrix Opportunities
 Digital store
technology
 Diversification of
product range
 Internal and external
expansion
 Better value delivery
to customers
Threats
 Increasing competition
 Increasing health
concerns and
awareness
Strength
 Strong base of
financial resources
 Strong brand image
and high market share
in United Kingdom
 Wide range of
products and services
 High level of customer
SO Strategy (Strength-
opportunity)
 Acquisition of Argos
ST Strategy (Strength-Threat)
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satisfaction
Weakness
 Low technological
innovations and
seamless connectivity
between various sales
platforms
 Single market and
heavy reliance of food
products
WO Strategy (Weakness-
opportunity)
WT Strategy (Weakness-
Threat)
On the basis of above TOWS Matrix, it can be evaluated that the strategy of Sainsbury to acquire
Argos is suitable considering the strengths and opportunities for the company. Sainsbury has a
strong base of financial resources which has presented the opportunity of acquisition for the
company. Sainsbury currently relies heavily on food products for maximum part of its revenue
and with the acquisition of Argos, the management can focus on offering a wide and diversified
range of products and services with the strong brand image and goodwill to attract more
customers (Sainsbury wins battle to buy Argos, 2016). Digital technology and in-store
integration of technology is a major opportunity for the management of Sainsbury and with the
help of acquiring Argos, the company can make use of existing digital innovation at Argos’
stores. Sainsbury has a huge market share in United Kingdom and internal expansion is a
significant opportunity for the company since domestic dependence is high for the company and
hence, with the acquisition of Argos, the management of Sainsbury has ensured market
competitiveness and extension of support in the domestic markets of United Kingdom.
Acceptability:
Stakeholder mapping is a process of visual representation of the individuals who have
interest in the activities of the business and their authority to impact the operations. For
determination of the acceptability of strategy of Sainsbury to acquire Argos, affect of the strategy
on three important groups of stakeholder can be evaluated:
Customers: As a result of the acquisition of Argos by Sainsbury, customers of both the
company have benefitted since a more diversified range of products and services with a strong
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brand commitment of Sainsbury are now available to them using multi-channel high-technology
digital distribution channels of Argos (Sainsbury's sets out how Argos acquisition will accelerate
strategy of making customers' lives easier, 2016). It has resulted in maximisation of comfort and
value for the customers and hence, created a positive impact.
Shareholders: Sainsbury has reported an increase and boost in the sales on account of sales
generated through platforms of Argos which has resulted in increasing profits and dividends by
the company (Argos takeover boosts Sainsbury trading, 2018). Hence, the strategy creates a
positive impact on the shareholders by maximisation of their wealth as a result of profitable
operations of company.
Employees: Employees of both Argos and Sainsbury will also be impacted positively as a
result of the strategy since it will result in better accessibility to technology and other physical
resources. Experts from both the companies can be used for enhancing employee training and
development which is an advantage for the employees as stakeholders of Sainsbury.
Hence, it can be observed that the strategy is acceptable considering the interest and
requirements of various group of stakeholders of Sainsbury.
Feasibility:
Feasibility evaluation refers to determining whether the required skills, resources and
other competencies are available to the business organisation for execution of strategy. Sainsbury
has a team of highly skilled employees and human resources which can be used for executing the
strategy of acquiring Argos. For acquiring Argos, the management of Sainsbury requires a huge
investment and the company has a strong base of financial resources which can be used for
making investment into business opportunity. Other essential resources such as physical
resources, intangible resources, technology and innovation capability etcetera are accessible to
the management of Sainsbury for execution of strategy.
Hence, it can be evaluated on the basis of above test that strategy of management of
Sainsbury to acquire Argos has the element of suitability, acceptability and feasibility which
determines the positive impact and benefits as a result of execution of this strategy.
CONCLUSION
On the basis of above report, it has been concluded that external environment presents
opportunities for growth and maximisation of revenue to the management of Sainsbury that
should be considered. The management of Sainsbury constantly endeavours for maintaining the
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competitiveness of firm in the industry. On the basis of internal resources and value-chain
analysis of Sainsbury, it can be recommended that obtaining cost-advantage is a source of core
competency for the organisation. At last, the strategy of Sainsbury to acquire Argos has been
evaluated and it has been observed that the strategy matches the criteria for suitability,
acceptability and feasibility and is expected to create positive impact.
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Annual Report and Financial Statements. 2020. [Online]. Available
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and-presentations/annual-reports/sainsburys-ar2020.pdf>
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Argos takeover boosts Sainsbury trading. 2018. [Online]. Available
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