Strategic Analysis of Sainsbury's Acquisition of Argos: A Case Study

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Strategic analysis report
Case 2: Sainsbury
Evaluation of the strategy: Sainsbury acquires Argos

TABLE OF CONTENTS
Introduction......................................................................................................................................1
Task..................................................................................................................................................2
1. Carry out external analysis (business environment and industry) to identify a set of
Opportunities and Threats and assess industry attractiveness.....................................................2
2) Analyse the resources and key competences of the organisation and identify core
competences (key factors that may give the company its competitive advantage).....................7
3) Choose one strategy that the company implemented recently and evaluate it using SAFe
criteria........................................................................................................................................10
Conclusion.....................................................................................................................................13
References......................................................................................................................................14

LIST OF FIGURES
Figure 1: Components of the business environment........................................................................2
Figure 2: Variables of PESTLE analysis.........................................................................................4
Figure 3: Porters five forces............................................................................................................6

Introduction
Strategic analysis of the organisation is being concerned as the process of have depth analysis of
the environment to formulate the strategy for achieving growth and success in the market. With
the help of this, proper analysis of the business environment is being conducted in which the
current business is operating. Current report will have suitable analysis of the Sainsbury that is
one of the largest chains of supermarket of UK (Metzger, 2014). Current report will have overall
strategic analysis of the Sainsbury including its internal and external environment. Also the
report will have analysis of the strategy that is implemented by the organisation to achieve
growth in the competitive market. Overall report will able to evaluate the current performance
and position of the Sainsbury to succeed in the competitive environment.
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Task
1. Carry out external analysis (business environment and industry) to identify a set of
Opportunities and Threats and assess industry attractiveness
Business environment of the Sainsbury is concerned with the sum total external and internal
factors that leave great influence on the business. These both the factors have greater effect on
the working of the business. From the below image, it can be analysed that external environment
constitutes of both macro and micro environment and internal environment includes the
resources, technology, labour union, etc. This leaves huge impact on the business operations
such as marketing, sales, production, etc (Pulver, 2012). However, external environmental
analysis of the Sainsbury is being done below to have analysis of the key opportunities and
threats.
Figure 1: Components of the business environment
(Source: Author)
External environmental analysis (PESTLE)
Political: This includes the actions of the government that impact on business policies and
structures. For example, in 2016, the impact of Brexit leads to cause negative impact on retail
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industry that means uncertainty was observed in the economy. Brexit leaves a high impact on
giving rise to inflation and wage growth depression that gives direct impact on the UK
supermarket sales (Harrison, 2013).
Economical: Such factor includes the change in the conditions of the economy. Following
Brexit, Sainsbury takeover of Argos give the financial attacks as currency hedges are coming to
an end. Though, Sainsbury is growing at the low rate from 2015 that cause negative impact on
the food retail market. But with falling of the food prices, customer’s satisfaction is earned but
causing injustice to the profit margins (Jenkins and Williamson, 2015).
Social: With the growth of technology, online shopping is growing as the highest trends. This
has lead to bring huge change in the tastes and preferences of the consumers and has affected the
sales and profits of supermarket. But Sainsbury is still on the advantage to develop the online
food shopping and maintaining stock at high convenience stores that has given rise to the sales
after 2016 (Ruddick, 2014).
Technological: Sainsbury is very familiar and well known with the trends of technology that has
helped to sustain in the competitive market. Sainsbury has introduced digital shopping and click
and collect services where people are placing their orders online. Overall online retail sales have
been increased about 80% and orders have increased within 20% in 2017 (Annual Report, 2017).
However, Sainsbury with such factor has able to meet with demands of the customers.
Legal: This includes the direct impact of laws and legislations that are framed by government on
the operations of the business. For example, UK government has levied sugar tax that aims to
reduce the quantity of sugar in drink manufacturing. This will impact on Sainsbury sale of sugar
and some of the drink products. But Sainsbury is strictly following the tax procedures and
policies that have helped to deal fairly within the market.
Environmental: Government is pressuring retailers to adapt practices of paper packaging and
use of recycled materials. This is leading Sainsbury to move towards zero waste supermarkets
that is leading to create positive mindset of the customers towards environmental protection. This
might increase the sales of Sainsbury with observing such activities.
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Figure 2: Variables of PESTLE analysis
(Source: KS rao Kunchala, 2016)
On the basis of analysis of the PESTLE analysis, different opportunities and threats for the
Sainsbury are being illustrated below:
Opportunities: Online retailing with the effective use of technology is one of the growing trends
that act as opportunity for Sainsbury to grow sales. In addition, consumers are mainly attracted
towards low pricing strategy that act as sources for Sainsbury to offer reasonable priced products
to the consumers. There is one more additional opportunity that includes the rising obesity in UK
is potential opportunity for the Sainsbury to offer healthy drinks and foods to attract more and
more people (Sajid et.al. 2015). For this, innovation can be brought in products to incorporate
products shapes and designs and retain the customer attraction.
Threats: The huge impact of Brexit leaves a greater result on the political conditions that lead
Sainsbury to face the great price hike that means consumers are willing to spend high prices on
different prices. Brexit is one of the trends that would affect the confidence of the consumer to
purchase products at higher prices. In addition, there is huge pressure of the competition that
affects the business to plan effective strategy to be competitive. Sainsbury faces the competition
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in terms from Lidl and Aldi that sells products on lower prices (Alexander, 2015). For this,
Sainsbury is effective to apply the competitive strategy that helps in achieving the key
competitive advantage.
Further analysis of the industry is being done with the application of Porters five forces that
would be applied to assess the industry attractiveness. However, further analysis is being
illustrated as:
Power of buyers: Sainsbury customers have relatively high bargaining power because of the
huge competition is available in the supermarkets such as Tesco, Aldi, Asda, etc. This enables
the products switching cost low that offers customers to bargain for the same products. British
people have the tendency to bargain regarding price apart from the brand (Sajid et.al. 2015).
Power of suppliers: Sainsbury suppliers have relatively lower bargaining power because there
are different suppliers in the supermarket industry. And Sainsbury have the power to replace the
initial supplier with the other because of its leading brand name. They generally purchase
products at low prices from suppliers and sell at little high rates to earn the suitable amount of
profit margins (E. Dobbs, 2014).
Threats of new entry: The threat is very low to the Sainsbury as overall supermarket is being
held by leading supermarkets and there is already the huge competition between other small
supermarkets such as Aldi, Waitrose, Lidl, Iceland, etc that are planning effectively hard to gain
the possible market position. In addition, such supermarkets already sell products at high
discounts and at reasonable prices that have lowers the fear of new entrants to enter into the
supermarkets (Porter and Heppelmann, 2014.).
Threats of substitutes: Current threat for grocery market is very high regarding both grocery
and non grocery items. There are different small local retailers providing goods directly to the
consumers at the same prices at home delivery. This increases the threat of Substitutes for the
Sainsbury. But still brand image and quality of the products are the key success factors for the
Sainsbury.
Competitive rivalry: There is high competitive pressure on the Sainsbury from the leading
supermarkets of UK that are selling goods ate marginal cost. This give rise to cut threat price
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wars between the supermarkets hence the buyer can easily switch towards the other supermarkets
(Jenkins and Williamson, 2015). This leads Sainsbury to apply acquisition strategy with the
Argos to survive from the huge competition in the global market.
However, it can be analysed from the above factors that Sainsbury can plan much better and can
advantage of the opportunities to grow within the market. But management of Sainsbury need to
plan effective decisions that are being related to considering the PESTLE factors.
Figure 3: Porters five forces
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2) Analyse the resources and key competences of the organisation and identify core competences
(key factors that may give the company its competitive advantage)
Key resources and unique capabilities of Sainsbury
There are different resources that are available with the organisation that includes capital
resources, human resources, financial resources, etc. This is effective for the organisation to gain
the key competitive advantage. In addition to this, there are different competencies of Sainsbury
that are illustrated below:
Strengths: Sainsbury has effective presence on the online platform that has lead Sainsbury to
grow on the online sales. 80% of the Sainsbury originate from online platform that is being
coupled with Argos delivery services that has helped retailer to gain the competitive advantage in
terms of delivering timely products (Annual Report, 2017). Sainsbury also have stronger supplier
relations and also positive channel of distribution has enabled Sainsbury to gain the competitive
advantage and offers flexibility to the customers. The Strategic contribution of Sainsbury adds to
customer convenience and advantage against competitors.
Acquisition with the Argos has given the advantage in the non food market that has lead to find
gradual increase in online sales through the help of strong Argos channels of the distribution.
This has enabled Sainsbury to meet with the Argos strategy of unique hub and bespoke the
supply chain with the first truck deliver (Elias Jahshan, 2018). On the other hand, strong
financial position to cope up with the economic conditions and greater mindset of the customers
regarding the brand name motivate Sainsbury to gain the key competitive advantage.
Weakness: There are some of the Sainsbury stores in UK that limits the range of customer that
limit the growth of business. Also the Brexit impact is not unknown that had given rise to the
inflation. Sainsbury is sometimes not able to compete with the loss that is being caused due to
inflation. Huge competition in the retailer market has lead retailers to move to everyday low
prices that decrease the value perception that drive the customers anyway to lower the product
value. In addition, there are different losses faced by the Argo that is the weakness for the
Sainsbury that has lead to lose some of the customer trust and cause to face the losses ( Financial
times, 2017).
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Sainsbury has faced some of the declining sales that have faced some of the sales due to
combination of factors that include higher inflation. This adds to pressure on the consumer
spending that is stepping competition in the retail sector. The downfall of sales and revenue acts
as weakness for the Sainsbury to pay major effort in maintaining the position (Hurly Lauren,
2017). Sainsbury does not offer much loyalty and discount programmes that decrease the
interaction with the customers. In addition the high discounting strategy of Lidl and Aldi is major
weakness for Sainsbury that lead to decline in the sales.
Core competencies of Sainsbury (VRIO model)
Such techniques help in effective analysis of the resources of the organisation that helps business
to gain the key competitive advantage. There are different dimensions of the VRIO that helps in
assessing the internal situations of the Sainsbury and test the capability of Sainsbury to meet with
the competitive advantage. These dimensions are being explained below in detail:
Core
competency
Valuable Rare Imitable Organised Result
Integration of
the technology
with the supply
chain
Yes No No Yes Competitive
parity
Ability to
generate huge
sales volume
Yes Yes No Yes Temporary
competitive
advantage
Smart and
superior
systems of
logistics
Yes Yes Yes Yes Long term
competitive
advantage
Key skilled and
qualified
workforce
Yes Yes Yes Yes Long term
competitive
advantage
Strong culture
and positivity
Yes Yes Yes Yes Long term
competitive
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among
relationships
within
organisation
advantage
Support of
human
resources and
employee
autonomy
Yes Yes Yes No Temporary
competitive
advantage
Follow of
policies and
regulations
Yes Yes No No Temporary
competitive
advantage
Customer
experience
Yes Yes Yes Yes Long term
competitive
advantage
Social
responsibility
corporate
image
Yes Yes Yes No Unused
competitive
advantage
Renowned
brand
Yes Yes Yes Yes Long term
competitive
advantage
As per the above VRIO analysis of the Sainsbury, it can be analysed that Sainsbury core
competencies is having the renowned brand and have huge support of skilled and qualified
employees that is effective for the Sainsbury to gain the key competitive advantage. The above
highlighted part is the key core competencies of the Sainsbury that is needed to be effectively
utilised and productivity can be earned. It is necessary for Sainsbury to have more plans and
application of strategies to achieve the long term competitive advantage.
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