Strategic Analysis Report: Sainsbury plc and Asda Merger Evaluation

This report provides a comprehensive strategic analysis of the proposed merger between Sainsbury plc and Asda. It begins with an introduction to corporate strategy, outlining key components and focusing on the Sainsbury-Asda case. The report then presents a brief overview of the merger's current status, highlighting concerns raised by the Competition and Markets Authority (CMA). The external analysis employs Porter's Five Forces to assess industry attractiveness, followed by an examination of opportunities and threats. Internal analysis includes VRIO analysis to evaluate valuable, rare, inimitable, and organized resources, along with an assessment of internal strengths and weaknesses. The report concludes with a strategy evaluation using SAFe tests. The analysis covers various aspects of the merger, providing a detailed understanding of its potential impact and strategic implications, drawing on resources such as the assignment brief and other relevant sources.

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STUDENT DETAILS
STUDENT DETAIL

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Contents
Introduction................................................................................................................................2
Brief of the current status of the merger....................................................................................3
External Analysis.......................................................................................................................3
Industry Analysis – Porter’s 5 forces analysis.......................................................................3
External analysis – opportunities and threats.....................................................................5
Internal analysis.........................................................................................................................7
VRIO analysis........................................................................................................................7
Internal strength and weakness analysis................................................................................9
Strategy evaluation...................................................................................................................10
Conclusion................................................................................................................................13
References................................................................................................................................14

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Introduction
Corporate Strategy works on the portfolio approach to design strategic decisions for an
organization by investigating its external and internal environment. There are four
components of the corporate strategy that are allocations of resources, organizational design,
portfolio management and strategic trade-offs, etc. For this report, the selected case is of the
proposed merger between Sainsbury plc and Asda. Sainsbury plc is the second largest chain
of supermarkets in the United Kingdom and they acquire a market share of 16% in the
supermarket sector. As of 2019, the operating income of the company is £312 million, they
have 1415 shops with 116,400 employees. In 2019, the net income of the company was
recorded at £219million (Wood, 2019). The principal reason behind the proposed between
these companies was fast-changing customers habits, arisen demand of customers and their
low purchasing power, more effectiveness of support from the supplier, combine working of
human resource executives, etc. In this report, there will be a discussion about the external
analysis of this merger through Porter’s five forces and external OT analysis. Apart from the
external analysis, the internal analysis will also be done through VRIO analysis and SW
analysis. In the end, strategy evaluation will also be done using SAFe tests.

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Brief of the current status of the merger
According to the report of Competition and Markets Authority (CMA), the merger between
these two corporation will result in creating more pressure on the customers. As these
corporation will hike their prices on the later stage. According to CMA, it is possible that at
the initial stage they will offer various offers to fascinate of the customers but later on they
will hike their offer prices and ultimately the burden will be shift on the consumers. Apart
from this, CMA also stated that currently thousands of people are working with them and it is
possible that through this merger it can results in the massive job loss (Armstrong and Taylor,
2020).
Thus, in this report, there will be a discussion about the aspects of this merger from the
external and internal analysis. This merger between these two supermarket giants will also be
discussed from the aspects of SWOT analysis also. Below is the external analysis of the
Sainsbury plc and ASDA:
External Analysis
Industry Analysis – Porter’s 5 forces analysis
Porter’s five forces is a business analysis model that helps the industry to analyse the various
different level of sustain of profitability. The five forces analysis is frequently used to
measure competition intensity, attractiveness and profitability. In this section, the five forces
analysis will be done in correspondence with the merger between Sainsbury plc and ASDA in
an effective and efficient way (Acha, Du and Shah, 2016).
Bargaining power of supplier:
This aspect processes low threat. Both companies have different suppliers and if this merger
becomes successful then they are chances that the bargaining power of the supplier will be
decreased. For example: currently, Asda purchases meet from the major meat manufacturer

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Kober and Forza AW. When the merger becomes successful then the bargaining power of the
supplier will be decreased. As per the data, if we say currently Asda is ordering 1000 units of
a product from its supplier, after the merger, both the companies will order 2000+ units of a
product. So, the supplier will be bound to offer an additional discount and this implies that it
will lower the bargaining power of the supplier (Bailey, et. al., 2018).
Bargaining power of buyers
In the business of supermarkets, the bargaining power of buyers processes low threat. As,
buyers are not in the position to bargain with the management for the products. However,
after the merger of these two companies, buyers can expect that they will receive discounts
and various promotional offers. With the same, buyers can also expect better customer
services because now the workforce of both the companies will work in an effective and
efficient way (Brewster, et. al., 2016).
The threat of new entrants
This aspect processes high threats. As, after their merger, there are chances that other
supermarket also comes forward for the merger. On the other hand, it is also possible that
companies who belong to another sector can also come forwards and operate starts to operate
their own supermarket stores. Thus, it can be said that the threat of new entrants processes a
high threat in this process. On the contradictory note, it can also be said that new entrants can
deny to set up their business in the supermarket to a large extent like Sainsbury plc and Asda.
Establishing a business to this extent requires huge capital and existing contact with suppliers
(Burgoine, et. al., 2017).
Threats of substitute products or from another supermarket company
This process high threats. After the merger, both companies will try to deliver products at low
prices to fascinate the targeted audience. In this case, it can be expected that the price war

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may start and other supermarket giants also started delivering products at the low costs. Thus,
it can be said that, the threat from substitute process high threats (Ejlerskov, et. al., 2018).
Rivalry among the existing competitors
This process low threat. As the primary objective of the merger between both companies is
that the management of both companies can lower down the threat from the external forces.
The merger between these two companies will lower down the process of external factors
including threats from the other companies in an effective and efficient way (Guest, 2017).
External analysis – opportunities and threats
The merger between both companies processes various opportunities and threats. Below are
the processed opportunity and threat analysis:
Opportunities
Growth in villages:
Currently, villages area can also be seen as the opportunity for the supermarket. As now, the
population who resist in the remote area also moving towards the modern trend. Thus, it can
be said that, the merger between these corporation will enable the management with the
effective technology and capital to make their setup in the remote areas too. The merger of
Sainsbury plc and Asda will resultant in better innovation and technology with better capital
value. This will open the arms to operate in the village areas also. (Butler, 2018).
Better R&D department – This will lead both the companies towards Machine Learning
(ML) and Artificial Intelligence (AI):
The merger of both companies will help the management to operate with the effective R&D
department. In the innovative R&D department, both companies can innovative better
technology. As today’s world is moving towards the norms of AI and ML, thus it is expected

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that combine the R&D department of the company will lead supermarkets towards
implementing AI and ML by making self-checkout systems, etc (Kelly and Riach, 2020).
Bulk orders will lead to higher discounts
When the merger of both the companies will be done then suppliers of these companies will
be combined. In this case, the merger of both companies will urge on demanding more bulk
size orders this will lead towards incorporating more discounts from the supplier. Later on,
the companies can pass this discount to the consumer to fascinate consumers towards
themselves (Jabbour, 2016).
Threats
Threat from Competition and Market Authority (CMA):
Currently, CMA is creating the hindrance in the process of the merger because of their own
perspective. According to CMA, the merger between these corporation will result in the job
loss of various workers who are working at the ground level. For example: According to
CMA, currently thousands of people are working with Sainsbury plc and Asda, there are
chances that changes in the management policy can result in the job loss of various
employees who are working at the ground level. (Butler, 2018). Apart from this, CMA is also
recreating hindrance with the fact that there are chances that in the near future the prices of
the products can be hike to cover the cost of the merger. In this case, the burden will be shift
on the consumers (Leybourne, 2016).
Arisen competition
If Sainsbury plc and Asda have successfully set their merger then there are chances that they
will deliver products or services in the reduced rates. In this case, there are high probability

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chances that their competitors such as Resco, Aldi, etc. can start the price war. Thus, it will
create a threat to the price war (Sparrow, Brewster and Chung, 2016).
Chances of conflict in the management
When two companies are agreed on for the merger then there are more chances for the
conflict in the stakeholders. As both companies operate with different management
approaches and this can lead to the arisen of conflict (Thomassen, et. al., 2017).
Internal analysis
VRIO analysis
Valuable:
Prime locations of both the companies are their valuable asset. Both the companies have their
supermarket stores established in the prime locations. Asda has 631 stores in the UK as of
2017 and there are 1428 stores of Sainsbury plc in the country. After the merger, the
management will combine operations and it will enhance the market value of their properties.
The not only market value of the properties will enhance but this merger will enhance the
market share of the company too (Tidy, Wang and Hall, 2016).
Rare:
Both companies have various copyrights and patents that are register under their name. These
patent rights are rare and their copyrights are only limited to them. After the merger, the
management can share their patents with each other for effective working. For example:
patents of Sainsbury plc are: A computer system for processing product data (publication
number: 20130030898). Patents assigned to Asda: Distributed device discovery framework
for a network (patent number: 20030097425), System and methods for monitoring display
unit compliance (patent number 20170300927), etc.

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Inimitable:
In 2019, Sainsbury's saw benefits of 239 million British pounds before charge and 219
million British pounds after assessment. This was an unmistakable contrast when contrasted
with the monetary year 2014/2015 when the organization worked at a misfortune (Bbc.com,
2019). The UK's second-biggest food merchant said pre-tax benefits jumped over 90% to
£9m in the half-year to 21 September after the erratic property record, contrasted and £107m
in a similar period a year prior (Butler, 2018). It additionally burned through £25m in excess
costs identified with redesigning store the board and shutting an Argo's conveyance station as
the market ventures up joining with the index shop it procured in 2016. 7.3 billion concurred
offers for Asda was obstructed by Britain's opposition controller in April, an entire year after
it was propelled. Walmart said in May it would rather take a gander at a first sale of stock for
Asda (Kelly and Riach, 2020).
Organized
The management entities of both companies are well organized. Their human resources
department is entirely dedicated to creating a sense of satisfaction among the workforce.
Now, after the merger, both the management entities will work in a better-sophisticated
manner. Thus, their organized management operations should be continued and they should
focus on making innovative technology that will lower down the work pressure from the
employees. Making functions innovative will also result in enhancing customer satisfaction
(Leybourne, 2016).
Internal strength and weakness analysis
Strength points
Existing workforce:

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Asda and Sainsbury plc have a sophisticated and well-trained workforce. Asda has a
workforce of over 170,000 people. Their workforce has the experience of serving 19million
customers at different periods of time. On the other hand, Sainsbury plc has a workforce of
145,000 people (Butler, 2018). The HRM department of Sainsbury allows its workforce to
work on a full time and part-time basis. 60% of their workforce works on a full-time basis
and 40% of their workforce works on a part-time basis. Between this, the major strength of
their workforce is that 62% of the employees of Sainsbury are women (Sparrow, Brewster
and Chung, 2016).
Sharing of supplier and logistic network:
Both companies have effective methods of supplier and logistic networks. This merger will
bring an immense opportunity where both the companies will share their logistic and supplier
networks. This will open the door of various opportunities for the management as sharing of
supplier and logistics networks will help both the companies to conduct the work in an
effective and efficient way (Thomassen, et. al., 2017).
Both companies have huge market shares:
Both companies operate with huge market shares. The merger of the operations will also
combine the market share of the companies. In this case, both the companies will have the
exposure of a large targeted audience (Tidy, Wang and Hall, 2016).
Weakness points
Low margin on food items:
Both companies operate in the supermarket business and they have a very low margin on the
foods. Even after the merger, they have to sell food products at the low margin only because

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immediately hiking the price of the food products will resultant in losing the interest of the
targeted audience (Wilshaw, 2018).
Need to give training to their human resource department again:
This will create a challenge for both the company as they have to again give combine training
to their human resource department. This training will help the workforce of both companies
to incorporate effective operations (Woo and Lee, 2018).
Need to design policies and framework again:
After the merger, both the companies have to re-design their policies so that the needs and
requirements of both the companies can be full in an effective and efficient way (Tidy, Wang
and Hall, 2016).
Strategy evaluation
Sainsbury and Asda adopt the "dual-brand strategy" in their merger:
Sainsbury's and Asda are wanting to work a "double brand methodology" as they uncover
subtleties of the merger that will make the UK's greatest store gathering. In a declaration at
the beginning of today (30 April), Sainsbury's said uniting the two organizations, which
between them had incomes of £51bn in 2017, will bring about a progressively "serious and
strong" business that will be better ready to put resources into value, quality, run and the
innovation to make increasingly adaptable ways for clients to shop (Ejlerskov, et. al., 2018).
The stun bargain between the UK's second and third-biggest markets makes a consolidated
system of in excess of 2,800 Sainsbury's, Asda and Argos stores. This compares to around a
31% portion of the grocery store division, in front of current market pioneer Tesco on 28%,
as per Kantar Worldpanel figures. Both the Sainsbury's and Asda brands will be kept up and
will work as a "double brand methodology" in basic food items with an end goal to "hone

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their unmistakable client suggestions and pull in new clients". Sainsbury's says it likewise
means to bring down costs by around 10% on regular fundamentals (Thomassen, et. al.,
2017). This strategy will help the corporation to work in accordance with the policy and rules
of the merger in the effective way. As, this strategy will help them to advertise the brand in
the appropriate way so that it can fascinate the interest of the majority of the customers.
With the dual-brand strategy, the management of both the company should incorporate the
democratic leadership style. This leadership style will help the management to enable their
employees with the delegate authority and responsibility to take the independent decisions in
an effective and efficient way. Apart from this, democratic leadership will work in sync way
with the dual-brand strategy as it is important to create job satisfaction among the combine
workforce of both the company (Jabbour, 2016). Incorporating the norms of democratic
leadership will enhance the job satisfaction of the workforce. Moreover, while processing the
norms of the merger it can be expected that various complex processes will be an encounter,
in this case, it is important that employees are free to take the independent decision to
overcome that complexity in the meantime. For the dual-brand strategy, it is also important
that both operations of the company become more creative and a democratic leadership style
will help the management in making employees more creative. Apart from this, the
management should also focus on the digital means of promotion and advertisement such as
incorporating the use of social media for advertising and promotion related activities (Kelly
and Riach, 2020).

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Conclusion
In this report, the case study of merger between Sainsbury plc and Asda is selected. In this
report, internal and external analysis is done. External analysis is conducted through the
porter’s five forces. It is concluded that bargaining power of buyer and supplier process low
threat. On the other hand, threat from substitute products is high. Internal analysis of the
merger is conducted through VRIO analysis. It is concluded that the prime store location of
both Asda and Sainsbury are their valuable asset. On the other hand, their patents and
registered copyrights are included in the rare category. In the strategy section, the selected
strategy that suits the merger condition of both the company is “dual brand strategy”. With
this strategy, it is also concluded that the company should opt for the democratic leadership
for the effective and efficient management operations.

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