Detailed Evaluation of the Sainsbury-Argos Acquisition Strategy Report

This report provides a comprehensive evaluation of the Sainsbury-Argos acquisition strategy. It begins with an introduction to strategy evaluation and the context of the Sainsbury-Argos merger within the UK retail market. The main body of the report delves into the business environment, identifying opportunities, threats, and weaknesses, and applying Porter's Five Forces model to assess industry attractiveness. It then analyzes the company's resources and unique capabilities, linking them to competitive advantages through VRIO analysis. The report also discusses the strategy evaluation undertaken by Sainsbury's, utilizing SAFe tests to assess its efficiency. The analysis covers internal and external environments, including micro and macro environmental factors. The report identifies synergies, new market opportunities, and technological advancements as opportunities, while also highlighting intense competition, government regulations, and financial risks as threats. The analysis extends to an assessment of the bargaining power of suppliers and buyers, and the threats of substitute products. The report concludes by summarizing the key findings and implications of the acquisition strategy.

Evaluation Of Strategy
(Sainsbury-Argos
Acquisition)

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
Business environment, identification of company's opportunities and threats and company's 5
Forces of Porter's Model.........................................................................................................1
Identify Company's Resources And Unique Capabilities And Their Link With Competitive
Advantages.............................................................................................................................6
Evaluation of acquisition strategy adopted by company by using SAFe Test.....................10
CONCLUSION .............................................................................................................................12
REFERENCES .............................................................................................................................13
APPENDIX....................................................................................................................................14

INTRODUCTION
Strategy evaluation is a process for formulating the plans for increasing the efficiency
and effectiveness of business process. It also helps in assessing the appropriate of current
strategy in business's world. This type of evaluation is significant, because of different factors
such as planning, developing input, appraisal, development and rewards etc. Sainsbury is the
second largest chain of super market in UK with 17 % share of super market sector. It is founded
in 1863, by John James. The organization become the largest retail business in terms of groceries
in 1922. Sainsbury and Argos are working in retail industry in UK Market. Argos is British
Catalogue retailer enterprise which operates in UK and subsidiary of the Sainsbury's. It has won
its four month battle to acquire the Argos in £1.3 billion.(Cuthbertson, Furseth and Ezell, 2015).
This report will discuss about the business environment to determine the different number of
opportunities, threats, weaknesses and strengths of the company. It should analysis the business
aspects to apply the strategy for managing operations and functions. Furthermore, this
assignment will also describe the organization resources and unique capabilities. It also
demonstrates the unique capabilities to link with the competitive advantages. This report will
also discuss about the strategy evaluation that the Sainsbury's undertook and evaluate by using
SAFe tests to its efficiency.
MAIN BODY
Business environment, identification of company's opportunities and threats and company's 5
Forces of Porter's Model
Business Environment – Business environment of Sainsbury consists of internal and
external environment which is surrounded by Business. Business environment is an important
aspects for Sainsbury which is get affected by company and also influenced company too. It also
helps the company to earn profits. Business environment of Company includes -
A. INTERNAL ENVIRONMENT – It consists of -
Financial Resources
Human Resources
Capital Resources
Objectives, Mission, Vision, Core values and Goals
Managerial and Companies' Policies, Rules and Regulations
B. EXTERNAL ENVIRONMENT – It consists of -
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1. MICRO ENVIRONMENT – which consists of -
Suppliers
Consumers
Intermediaries
Competitors
Media
Creditors
Debtors
Banking partners
Public
Government
2. MACRO ENVIRONMENT – which consists of -
Political Environment
Economic Environment
Social - Cultural Environment
Technological Environment
Legal Environment
Environmental Environment (Hamilton and Webster, 2018)
Identification of Company's Opportunities and Weaknesses -
2

OPPORTUNITIES OF SAINSBURY -
11 Acquisition Synergy – Synergy means either generate more profits or reduce cost
together by the combination of Sainsbury and Argos. There will be three synergies
generated by them are revenue synergy (selling more products), cost synergy (reduction
in costs) and financial synergy (better capital structure and better cash flows to gain
financial advantages). By these three synergies, company will earn more profits (Morden,
2016).11 New Market – Before acquisition, both companies have their own market which after
acquisition, increase because of Integration between both companies. This lead to
increase their sales, diversify their products portfolio and consumer base which will be
profitable for companies and they will achieve their target.11 New Technology – Both companies have their resources, which will be combined after
acquisition. If they have enough financial resources after acquisition so they will buy new
technology for production and distribution which lead them to produce more qualitative
products and access those products to meet the needs of end users fast. This will lead
company to earn more and more profits.
THREATS OF SAINSBURY -
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Illustration 1: Opportunities and
Weaknesses
[Source: State of the Business:
Opportunities and Threats, 2018]

11 Intense Competition – Company has to face a lot of competition in local, national and
international level because now company has become larger by every aspects in retailing
industry. Now company has to face intense competition with Tesco, Walmart, Amazon,
Asda, Morrisons, Waitrose, Boots and Debenharms etc.11 Government Regulations –There will be a lot of changes happen in government rules,
regulations and policies in every countries, where currently company is operating. Thus,
these changes in rules, regulations and policies can negatively impact the company's
operations and also can increase their operational cost.11 Financial Risks – Acquisition can increase the company's financial risk like currency risk,
interest rate risk, debt risk, credit risk, capital structure risk, financial model risk, liquidity
risk, financial accounting risk and market risk etc (Phadermrod, Crowder and Wills,
2019).
Assess Industry Attractiveness by Using Industry Analysis – Industry Analysis of
Sainsbury-Argos Company can be done through Five (5) Forces of Porter Analysis Model. This
model has 5 forces, which are mentioned below -
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1. Threats of New Entrants (Moderate)- New entrants has always threats of barrier to
enter in markets. Higher industry has threats of entry in markets and smaller industry
has threats of existing players. Threats include customer loyalty with existing brands,
investment with existing brand government policies and limited distribution channels.
As existing industry has experienced of increase service levels and make productivity
and profitability.
2. Bargaining Power of Suppliers (Moderate)- Suppliers have power of control on prices
and supply. It is determines power of supplier through substitute suppliers. Suppliers
also have capability of reduce quality of purchased goods and services and raise price
of selling. Its strength is their distribution channels and product differentiation with
competitor substitute.
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Illustration 2: 5 forces model
[Source: Porter’s Five Forces of Competitive Position Analysis, 2019]

3. Bargaining Power of Buyers (High)- Bargaining power of buyers described output of
markets. Its affect to customers through price changes. Customers have lots of option
for buy products because many alternative available in markets so customers easily
can switch one company to another. Buying power low of customers when they
purchase small amount of products. Internet and technology give power to suppliers
that they informed well about product. Customers easily search information about
product's variety and prices instantly. So companies can measures easily to buyer's
powers reduce (Carraher, 2018).
4. Threats of Substitute Products (Low)- Substitute product is a huge concern for
industries because many product and its substitute available in market so it divert to
customers for switch competitive products. Substitute product means product that
serves same need of customers. Like energy drink red bull has substitute product
available of coffee brands like Nespresso or Starbucks. So if one product prices
increase so customer switch their substitute product for fulfil their need. It affects to
profitability of company.
5. Competitive Rivalry (High)- It is process of determine that determine numbers of
competitors available in market with same product and same size. Its also useful in
analyse present competition of markets. So its direct affect that customers has many
option of purchase goods so they can easily switch to one company to another.
Rivalry cause highly through barriers to exit are high. Like long term agreements and
high fixed cost.
Identify Company's Resources And Unique Capabilities And Their Link With Competitive
Advantages
Identification of Companies Strengths and Weaknesses -
6

STRENGTHS OF SAINSBURY -
1. Economies of Scale – Economies of Scale is reduction in cost due to increase in
production of outputs. It gives the company competitive advantages over their
competitors, company produces more products which leads to control or reduces their
costs which cause to lower prices of products which attract more customers. Also it will
help the company to meet with the needs of consumers which helps in enhance the
consumer base. Overall it will give company a cost advantages.
2. Size Advantages – It will help the company to reduce their overall risks because larger
the company size, more the resources company will have. Proper utilization of resources
can lead company to achieve their objectives on timely which lead them to access
strongly on their new market and compete with their competitors. By this, company earn
profits.
3. Brand Value – Sainsbury is a known name in retailing industry and Argos is also known
name in the same industry. When two known and popular companies combine together
due to acquisition, this lead to creation of big brand value for company as well as
customers. Also, it gives high chance to company to charge high prices for their products
because they are unique brand for customers (Lüttgens and Diener, 2016).
WEAKNESSES OF SAINSBURY -
1. Distress Within The Employee Base – As there is acquisition between two companies
who was working in the same industry. Their management process and departments were
same. Their department also integrated which means company only can choose one
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Illustration 3: Strengths and Weaknesses
[Source: Gap Analysis –Identify Your Strengths and Weaknesses, 2019]

person out of two who were working at same position of same department. Thus, this
lead to lay-offs. Also it creates a fear of loosing jobs which means employees are low
satisfied with the acquisition, this lead to employee turnover.
2. Conflicting Objectives – Sainsbury and Argos are doing acquisition with different
purpose. These two different purpose if opposite to each other (like one company's
purpose is to expansion while another company's purpose to reduction in cost) can create
conflict between each other which can be a factor for the failure of acquisition between
companies.
3. Rising prices – Sainbury products have high prices which is increasing over upcoming
years. This lead company to lose their market shares and customer base. This also
negatively impact the company's brand image too. Also it give negative brand position in
the mind of potential as well as current customers (Korableva and Kalimullina, 2016).
Link Between Company's Unique Capabilities and Competitive Advantages -
Link between Sainsbury's capabilities and its competitive advantages can be done through VRIO
Analysis. VRIO analysis is a framework which helps the company to identify its capabilities and
competitive advantages (VRIO Analysis, 2011). VRIO stands for -
V – Value - It tells that how expensive the resources is for company and how easy it is obtain
from the market for the company.
R – Rarity – It tells that how rare or scarce or limited the resources, company uses
I – Imitabuility – It tells that how difficult for competitive company to imitate or copy the
resources, company uses.
O – Organization – It tells that how company manages its resources with present structure and
how properly company utilized its resources.
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Company's Resource and Its VRIO Analysis -
1. Supply chain network – It is valuable for company. It is rare for another company
because it is effectively and directly managed by company itself. But it is not imitable
because competitors can copy them by their sources. Also company fully utilised their
supply chain management resources. This all lead to company to run effectively and fast
distribution of products to the stores.
2. Financial Resources – It is valuable for company. It is rare for another companies. It may
be imitable for company because its management is unique but it may not be imitable for
company because through which company get its financial resources, competitors may
have it. Company have good financial position and solve the financial risk at any time.
Which leads to company to gain competitive advantages if company invest its excess
financial resources to buy new technology or hire new professional and skilled
employees.
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Illustration 4: VRIO Analysis
Source: VRIO Analysis, 2015.

3. Pricing Strategies - Pricing strategies adopted by Sainsbury is valuable. But it is not rare
because competitors adopted same strategies due to gain customer base. Also it is not
imitable. Organization is using pricing strategies analytical engine which help the
company to gain competitive advantages over another competitive company.
4. Human Resources – It is valuable for the company. It is rare for another company as well
as not imitable. Organization are doing various employee retention and employee
participation activities to motivated them, satisfy them and to retain in the organization.
So that they can work hard and Their morale and production level can increase. This will
lead them to achieve its objectives. Overall company will gain competitive advantages.
5. Consumers – Consumers are valuable for company. It is rare for company because
company has been able to create different relationship with its customers and successfully
attract them. It is not imitable because company did different consumer relationship
strategies which cannot be adopted by another companies. Organization is doing a lot of
up-gradation and implementation of customer’s relationship strategy for gaining
competitive advantages over its competitors.
6. Brand Name – Brand name is very important and valuable for the company because
without brand, Company is nothing. Yes, it is rare for company because, this brand is
leading in UK market. Also, this brand name is doing great at Global market too. It
cannot be imitable by another competitive company. Organization are doing innovative
things to keep its brand name high and implementing various strategies like marketing
strategy, positioning strategy, CRM strategy etc to increase its brand awareness (Vargas-
Hernández and Garcia, 2019).
Evaluation of acquisition strategy adopted by company by using SAFe Test
Sainsbury wants to boost sales growth, improves its logistic network and enhances its
consumer base. To achieve this target, Sainsbury adopted Acquisition strategy and targeted
Argos for acquisition. After 4 months battle, In April 2016, Sainsbury successfully acquired
Argos for £1.3bn. This acquisition was completed in September 2016. After that Sainsbury
divided into 3 big groups – Sainsbury's, Sainsbury's Bank and Sainsbury's Argos. Because of
Acquisition, Company became largest retailer of merchandise in UK.
SAFe is an analytical tool which helps company to assessing the adopted strategy's
effectiveness by 3 criteria -
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