Sainsbury's Acquisition of Argos: A Corporate Strategy Report

Desklib provides past papers and solved assignments for students. This report analyzes Sainsbury's acquisition of Argos.

Applied Corporate Strategy
1

Table of Contents
Introduction......................................................................................................................................3
Q1. External analysis.......................................................................................................................4
Q2. Internal analysis......................................................................................................................10
Q3. Strategy Evaluation.................................................................................................................14
Conclusion.....................................................................................................................................16
Reference List................................................................................................................................17
2

Introduction
Corporate strategies are directions taken by organisations to achieve business success and earn
competitive advantages. The need for adopting corporate strategies is to anticipate and adapt
changes within the business environment. These strategies emphasise on growth, renewal and
stability of a business. A corporate strategy refers to a strategic tool that enables firms to utilise
resources and fulfil the desired objectives. Without having a good and clear corporate strategy,
companies may lose their focus from the main objectives and thereby gain loss. Management can
build the benchmark for measuring success through a well-designed corporate strategy.
The study on applied corporate strategy shall evaluate the strategy undertaken by Sainsbury to
acquire Argos. Sainsbury is a popular supermarket chain founded in 1869. It was the initiator of
Self-service retailing in the country (About.sainsburys.co.uk, 2019). Sainsbury Plc has been
divided into three segments including Sainsbury’s bank, Sainsbury’s Argos and Sainsbury’s
supermarket limited. It deals with products like a hypermarket, superstores, forecourt shop and
convenience shop. Argos is a catalogue retailer mainly operates in Ireland and the United
Kingdom. It trades through both online and physical platforms and deals with consumer goods.
Sainsbury’s acquisition with Argos is on one of the largest acquisition between food and non-
food retailers. With this acquisition, Sainsbury, UK has owned more than 2000 stores in the UK
and Ireland.
The report shall identify opportunities and threats through PESTLE analysis and assess the
industry attractiveness through Porter’ Five Force model. The key competencies and success
factors shall be analysed through VRIO and SWOT analysis. The study shall evaluate this
strategy by conducting a SAFe test.
3

Q1. External analysis
PESTLE analysis shall enable in determining the opportunities and threats in the business
environment.
External Factors Impacts ( Threats and opportunities)
Political The Brexit incidence has made Pound weaker
for which Sainsbury may face the threat of
trade restrictions and uncertainties (Lawless
and Morgenroth, 2019). The profit margin of
this retail firm may be affected due to less
scope for market growth and expansion. The
Government aims to lower the tax on
companies by 2019, which is an opportunity
for Sainsbury to save tax expenses. Political
constancy of the UK is a great strength for
Sainsbury, as it has the opportunity to make
and implement strategic decisions smoothly
and timely.
Economic Sainsbury’s business can be highly influenced
by the economic recession, the rate of foreign
exchange, interest rate and GDP growth. The
UK”s economic grew by 0.3% during October
2018 (bbc.com, 2019). The strong economic
situation of the nation is an opportunity for
affluent and smooth supply of retail products.
The UK’s inflation rate fell to 2.1% in January
2019 (bbc.com, 2019). The lower inflation rate
is an opportunity for operating business at
lower cost.
Social The current lifestyle of UK consumers has
4

created changes in the retail business. With
dynamic wants and attitude of customers,
Sainsbury may be pressurised to bring
innovation in customer service and products.
Consumers are educated and aware of retailing
business and its changing atmosphere. If
Sainsbury shall transform and give a new look
to its product lines, it may acquire a quick
response from consumers. It means consumer
preference; lifestyle and attitude are
opportunities for Sainsbury, UK. The firm
may explore other opportunities like age
distribution, income distribution and
demographics, which have a direct influence
on retail business performance (Rhodes and
Brien, 2014).
Technological The technological factors posing threats or
opportunities for Sainsbury can be security,
upgrades, innovation, and others. Recently, e-
commerce business is overshadowing the in-
store retail business (Hoc et al., 2013). It poses
a threat for Sainsbury Plc, as consumers are
moving their preference from traditional store
purchases to online platforms. Data storage
confidentiality through improved technology is
an opportunity for Sainsbury Plc to secure its
credentials and consumer personal information.
Increase in cybercrime in the UK is a threat to
operational stability and business data of the
firm. The firm may introduce a digital
catalogue that can enable customers to browse
5

its products easily.
Environmental The number of environmentally and ethically
conscious consumers has been rose in recent
times. It poses an opportunity for Sainsbury
Plc to source its products ethically and gain
consumer trust and loyalty. Sainsbury Plc is
adhering to environmental policies and
regulations constantly. It is working for
effective waste management and less
application of plastic bags in the business. CSR
practices are opportunities for Sainsbury Plc to
improve its brand recognition in the industry.
Legal Legal factors enable Sainsbury Plc to
implement policies and practices for the
smooth business process. Health and Safety at
work 1974 ensure safety, well-being and good
health of employees during their working
hours (Hse.gov.uk, 2019). It is an
encouragement and opportunity for Sainsbury
Plc to protect the health of workers, clients,
visitors and public. Equality Act 2010 ensures
maintaining equality in workplaces by ignoring
the discriminatory characteristics of
individuals. Sainsbury Plc strictly follows this
law to promote equality and diversity. Data
Protection Act 2018 is another law that poses
an opportunity for Sainsbury Plc to manage its
data and information securely. When the
Government brings changes in the existing
policies and regulations, the business may face
the threat of changing its internal policies and
6

thereby increase the business expenses.
Table 1: PESTLE Analysis
(Source: Created by the learner)
The PESTLE analysis shows that some forces in the business environment are standing as threats
and opportunities for Sainsbury. The opportunities identified are as follows.
 Low corporation tax
 Political constancy of the UK
 Lower inflation rate
 High GDP growth
 Corporate social responsibilities
 Positive attitude, educational background and other social factors
 Advancement in technological infrastructure
The threats identified for Sainsbury Plc are as follows.
 UK’s decision on leaving the European Union
 Changes in regulations and policies
 Prevalence of e-commerce business
 Increased cybercrime
Industry attractiveness is the future profit potential of a sector. The retail industry analysis can be
conducted by considering Porter’s Five Force framework. The strategic management tool is
effective in analysing in industry attractiveness and determining the underlying accelerators of
profits in a given industry. The observed forces have impacts on Sainsbury Plc’s business. These
competitive forces are as described below.
7

Figure 1: Five forces
(Source: E. Dobbs, 2014)
Bargaining power of purchasers
Buyers in the retail industry are much demanding. They demand high discounts and offers from
companies. They want availing quality products at fewer prices. It means the power is high. This
puts pressure on the profitability of Sainsbury for a longer period. With increasing in power of
buyers, Sainsbury may be forced to design discounts for its retail products. If Sainsbury Plc
comes with innovation rapidly, the bargaining power may become low due to the availability of
fewer options. Development of new retail products can be another solution for lowering the
bargaining control of consumers (E. Dobbs, 2014).
Bargaining power of Suppliers
Sainsbury and other retail companies buy raw materials from several suppliers. Firms supplying
the required materials are not present in leading positions. The firm has options to make deals
with new suppliers due to the low switching cost. This indicates that the bargaining power of
retail suppliers is low. Sainsbury Plc can make more profits with lower bargaining power. In
order to maintain this bargaining power, Sainsbury needs to build a large supply chain with
8

major suppliers of the industry. It needs to manufacture products with different categories of raw
materials so that it can easily switch to other suppliers if one supplier increases its cost suddenly.
Threat from new entrants
New entrants enter a particular industry with a new value, reduced cost and low pricing strategy.
People can establish new retail firms to sell consumers with various products. It is difficult to
provide them with the desired value, as consumers like to purchase products from established
retailers. It means that new entrants can pose a moderate threat for Sainsbury Plc. Sainsbury
should emphasise on research and development to bring innovations constantly in the market to
face moderate threats from new ventures in the industry.
Threat from substitute products
Substitutes are the products fulfilling the customers’ needs in different ways. Sainsbury Plc is a
supermarket providing on traditional purchases. The alternatives can be independent retail stores,
small grocery stores, e-commerce platforms and others. E-commerce platforms are dominating
the retail market by providing consumers with maximum convenience (Hoc et al., 2013).
Additionally, consumers with poor economic conditions prefer purchasing from small grocery
stores. It indicates that threats from alternatives to the supermarket are high for Sainsbury Plc.
The firms can tackle with this threat through initiating service-oriented business and targeting
low-end customers.
Rivalry in retail sectors
The UK’s retail business is growing at a faster rate. Existing businesses are coming with new
strategies to become dominant in the industry. The rivalries of Sainsbury Plc are Tesco plc,
Marks & Spencer, ASDA, Morrison, and others (Aluko and Knight, 2017). These competitors
are occupying a major portion of industry share. They are quite similar to Sainsbury in terms of
business practices, product variants and others. It indicates that the power of rivalries is high.
Sainsbury can deal with an intense rivalry with bringing differentiation in business development.
It can adopt collaborative business practices in association with its competitors that can enhance
its profit margin.
9

Q2. Internal analysis
SWOT Analysis is an approach undertaken by an organisation to measure its internal strengths,
weaknesses and external opportunities and threats (Aithal, 2016).
Figure 2: SWOT Analysis Model
(Source: Created by the learner)
SWOT Analysis on Sainsbury is given as follows-
Strengths:
 Sainsbury has a very strong employee
strength over 1.5 billion people, which
indicates one of the largest human
resources in the supermarket chain of
the UK.
 Sainsbury has a high brand value for
being an experienced supermarket chain
in the UK since 1869.
 Sainsbury uses excellent advertising
through printed advertisements,
television series and online campaigns.
 Sainsbury also sponsored world famous
Weaknesses:
 The rising of food values have a negative
impact on Sainsbury’s selling prices. The
company accordingly had to cope up
with this scenario by increasing selling
prices.
 Sainsbury also has to face stiff
competitions within every section of the
supermarket chain industry in the UK.
 Moreover, Sainsbury has a
comparatively weaker online offer
system and loyalty program for the
customers to compete with its
10
SWOT Analysis
Strength
Opportunity Threat
Weakness

sports events like Paralympics.
 Currently the company has over six
hundred supermarkets and around eight
billion shops around the UK.
 Each of Sainsbury’s shops stocks around
three billion lines out of which 20%
being “own-label” products.
competitors (Guo and Wang, 2019).
Opportunities:
 Sainsbury can enter the new
international markets where the national
economy is growing very fast, like South
African and Asian countries.
 Sainsbury can also enter the market by a
particular market enter strategy called
joint ventures, partnerships or
acquisitions. For example, recently
Sainsbury acquired Argos, another well
reputed supermarket chain in the UK
industry in order to have business
advantages.
Threats:
 The main competitors of Sainsbury in the
retailing industry are Boots, ALDI, Tesco,
Amazon, Walmart, and Waitrose, which
can become threats for it in future. In order
to compete with them Sainsbury has to
find the best quality resource to
manufacture financially affordable
products (Walton et al., 2017).
 Globalisation is another challenge for
Sainsbury as it tries to raise the selling
price of the food items to maintain
economical balance.
Table 2: SWOT Analysis of Sainsbury
(Source: Created by the learner)
Strength of the Strategy:
Sainsbury recently acquired Argos limited. This acquisition has a definite business benefits in
terms of profit margin and increased revenue rates. Sainsbury has acquired Argos to make its
product range larger. Moreover, it is looking to acquire the online delivery business of Argos by
putting Argos stores into their supermarket chains. Sainsbury added its own home ware and
non-food range of items in their Argos shops to spread its business. Strength of this merger
strategy is that it will allow the cost price to drop down around 10%.
11

Weakness of the Strategy:
A weakness that can be reflected in this merger case is that it will become difficult to manage
cross-cultural staffs from two different retailer brands. Moreover, the merging of two different
company’s staff recruitment and selection procedure may raise conflict situations. A risk
management issue can also be associated while investing in future to this combination.
Sainsbury’s unique resources and core competencies can be identified through application of
VRIO analysis.
Resources/
Capabilities
Valuable Rare Imitable Organised Competitive
advantages
Brand Image Yes Yes No Yes Long-term
Competitive
advantage
Distribution
channels
Yes No Yes Yes Temporary
advantage
Patents Yes Yes No Yes Long-term
Competitive
advantage
Skills and
qualification
of employees
Yes No Yes Yes Temporary
advantage
Technology
support
Yes No Yes Yes Temporary
advantage
Research and
development
Yes Yes No Yes Long-term
Competitive
advantage
Cash flow
management
Yes No Yes Yes Temporary
advantage
Risk
management
Yes No Yes Yes Temporary
advantage
12