Strategic Analysis of Sainsbury Group PLC: A Comprehensive Report

This report provides a comprehensive strategic analysis of Sainsbury Group PLC, focusing on its merger with Asda within the UK retail industry. The analysis begins with an external assessment using the PESTLE framework, examining political, economic, socio-cultural, technological, legal, and environmental factors influencing Sainsbury's operations. This includes the impact of Brexit, economic conditions, changing consumer trends, and technological advancements. The report then delves into an internal analysis using the VRIO model and value chain analysis to evaluate Sainsbury's resources, capabilities, and competitive advantages. Key strengths include brand image, financial stability, and a strong property portfolio. The report concludes with a strategic evaluation, presumably employing the SAF model, to assess and recommend strategic directions for Sainsbury's, considering both opportunities and threats identified in the external and internal analyses. The report highlights the competitive landscape of the retail industry and the strategic challenges and opportunities faced by Sainsbury's.

APPLIED CORPORATE
STRATEGY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
QUESTION 1 : External analysis....................................................................................................2
QUESTION 2 : Internal analysis.....................................................................................................5
QUESTION 3 : Strategy evaluation................................................................................................9
REFERENCES..............................................................................................................................12
1

INTRODUCTION
Sainsbury group plc is the largest retail super market chain of UK. The company deals in
clothing, home ware, garden and groceries which helps them in gaining synergy (Masic, and
Yeomans, 2017). This report will highlight about merger of Sainsbury with Asda stores. They
both are operating in same industry that is retail. Also, they both are competitors by strategy of
merging they able to work together for attaining success and profitability. This report will
analyse external as well as internal factors. Also, this will lay emphasis on strategic evaluation
through SAF model.
QUESTION 1 : External analysis
PESTLE Analysis
Political factors
Debt on government – In UK, the debt rate on customers as well as government is very
high. There is a high threat of customers which directly impacts on conditions of business. The
Sainsbury group plc for keeping their business continually undertake these market conditions.
Brexit – In the year 2016, Britain has voted for leaving European union (EU). The
political and economic conditions both were impacted on many businesses including Sainsbury.
After Brexit, there is an opportunity for company for their business expansion but due to decline
in spending power of company the outcomes were not matching with the expectations.
Economic factors
High inflation and unemployment – The economic factors affects a lot to retail sector
in UK. The product demand of Sainsbury declines due to rise in unemployment which lead to
decline in production of food. Thus, it is an opportunity for company like Sainsbury to expand
their business in emerging markets.
Decline of monetary value – After Brexit, the value of pound sterling lowers down
against dollar (Hopkin, 2018). This impact a huge threat of financial uncertainty for hiking up
price of dollar by takeover of Argos with Sainsbury.
Socio cultural factors
Cook and Save – The increase in trend of women work force prevails an opportunity for
Sainsbury group to market their easy to cook products. The company promotes their products by
a marketing tag line “Cook and Save”. These products provide costumer convenient in cooking
as well as budget friendly.
2

Online sales – The retail supermarket company Sainsbury group plc is following the
trend of online sales to supply their products to the final customer through official websites. But
there is a threat to company as there is increase in cyber crimes which affects their sales from the
fraudulent activities.
Technological factors
Digital services – Sainsbury is adopting in the phase of digital revolution by operating
their business through online shopping site & click and collect service. Capturing the opportunity
of recent trend of digitalisation company is attaining success over 80% and also there orders after
application of digital gadgets increases nearly 20% annually.
Online platform – The company is executing huge orders through their online websites
but their staff is not well trained to handle the malfunctioning of computers and to avoid cyber
crimes. Thus, it is a huge threat for Sainsbury to suffer losses from malfunctioning activities.
Legal factors
Advertising banned rules – Sainsbury is facing high threat from decline in sales die to
restrictions among promotions and marketing efforts. The government of UK ban advertisements
of high fat, salt & sugar (HFSS) drinks and food products for under 16 children all over UK. This
rule affect their sales and customer base.
Sugar tax – The UK government, levied a tax that is “Sugar Tax” to reduce 20% content
in sugar drinks by the year 2020. Thus, it impacts supermarket a lot but it is an opportunity for
Sainsbury to launch sugar content drinks with minimum sugar content. This will help them in
attain political support and also they will able to gain health conscious customers.
Environmental factors
Paper and recyclable packaging – There is a trend of recyclable packaging prevailing
under environmental conscious individuals to demand packaging which is environment friendly
and recycled materials. Sainsbury has a strong opportunity to follow the prevailing trend for
brining the first mover advantage and to gain attraction of individuals towards environment
friendly activities.
Zero waste super market – Sainsbury is executing their efforts in “Reduce, Reuse,
Recycle” approach to manage efficiently in managing, recycling waste and packing. But they are
facing huge threat from introduction of Zero waste super markets in UK which is Food. Love in
Totnes which is gaining more attraction rather than Sainsbury.
3

Porter's five forces
Threat of New Entrants – Moderate
The company Sainsbury plc is facing moderate threat of new entrants as they bring
innovation and new ways of accomplishing things which pus pressure on them. Sainsbury
through lowering their price and new value proposition to consumers manage these challenges in
industry of retail.
Bargaining Power of Suppliers – High
The companies prevailing under industry of retail buys raw material from many
suppliers. The suppliers are having a position of dominance which decreases Sainsbury margin in
market. Suppliers adopt tactic of negotiation to attract higher price from the whole industry. This
directly impact on profitability of Sainsbury.
Bargaining Power of Buyers – High
Buyers demand a lot to minimize their price as possible. They pressurize whole industry
and Sainsbury plc as well to decrease their price by holding a high power of bargaining. This
impacts directly on long run profitability of company as they accomplish their target sales by
increasing offers and discounts in their stores.
Threat from Substitute Products – Low
There is low threat of substitute products in industry of retail because complying with the
needs of customers company introduces new products and services. The switching cost of
customers are high but unavailability of substitute products decline treat of products for
Sainsbury.
Rivalry among the existing players – High
The retail industry is facing high internal competition from rivalries. Existing players in
industry of retail affects profitability as well as customer base of Sainsbury group. The
competitive environment forces Sainsbury to be innovative to face challenges from competitors
in same industry.
From the above external analysis, the following will be identified from the factors
discussed above. The threats and opportunities will be as follows :
Threats
 Debt on government impact on market conditions of Sainsbury group plc.
4

 There is a huge threat to Sainsbury by hiking up dollar price will lead to financial
headache for company as they take over ASDA after Brexit.
 Company is increasing their sales by online official websites but due to increase in cyber
crimes the company is facing high threat of bearing huge loss by fraudulent.
 By expanding through online platform, Sainsbury is face threat of cyber crimes which
affects their profitability and sustainability to succeed (Thompson and Mc Larney, 2017).
 The rule ban advertisement of HFSS content drinks depicts a great threat to Sainsbury
and their customer base decline due to restriction in marketing efforts.
 The company is facing high threat from super market of zero waste because the
customers of Sainsbury gets highly attracted towards them which reduces their sales and
long term profit.
Opportunities
 Brexit impact on political and economic conditions which prevails opportunities for
business expansion in other countries.
 High inflation and unemployment prevails an opportunity for Sainsbury to expand their
production in emerging market.
 Due to increase in trend of women working, company is attain an opportunity for
introducing products which can cook with ease and also budget friendly.
 The emerging of digital services enables an opportunity for Sainsbury to attain
profitability and increase in sales up to 20%.
 There is opportunity for Sainsbury to introduce products with less sugar content which
help them in attracting customers of healthy supplement consumption (Evans, 2016).
Also, following sugar tax assist company in attaining political support.
 The company can make effort to attain a first mover advantage by use environment
friendly packaging to support pollution free environment and to gain attraction of
concerned individuals.
QUESTION 2 : Internal analysis
VRIO model
Value Rarity Inimitability Organisation
The fresh food and The meal ticket For Inimitability, the The portfolio of
5

quality of local meat
provides superior
value to Sainsbury as
offered them to their
customers. Along with
it, the home delivery
electrical vehicles add
additional value to
Sainsbury also by
adopting solar energy
to their stores added
great value to stores of
Sainsbury group plc.
The Sainsbury's
biggest weakness is
that they need to
operate their operation
of businesses in highly
competitive
environment under
which company in
order to deliver
financial products
better than their
competitors add a
sustainable value as
they own full
ownership of banks.
This helps the
company to attain
sustainable strength
specially for students
are one of the rare
product of Sainsbury.
There are two cards
come with the meal
ticket from which one
will remain with
parents and with child.
The parents load
money up to £750 and
children can avail it
only at stores of
Sainsbury (Hammad,
2015). This is one of
the biggest strength of
Sainsbury as these
cards are not provided
by any of their rivalry.
Sainsbury group
creates a strong brand
image from 144 years.
They are known for
reliable supermarket
which sells fresh, tasty
and quality food for
many generations. The
Sainsbury is a brand
which holds patent in
their name so that no
other company can
adopt it. The brand
value of Sainsbury is
build on their image of
brand. Thus, strong
and positive loyalty of
customer represents
their strengths to be
with the brand of
Sainsbury so that they
remain inimitable.
product and synergy
among various line of
product is adopted
effectively by
Sainsbury group. Also,
the position of brand
in comparison with
other rivalries is good
as per the behaviour of
customers observed.
The company
Sainsbury also avail a
sustainable financial
position and a track
project execution
record. Strong
financial position
brings the greatest
strength for Sainsbury.
6

with ownership. The
company also provide
labels of TU in their
clothing which add a
great value to the
products of Sainsbury
in mind of their
customers.
Value chain analysis
Physical
competences
Liquidity
ratio
The Sainsbury has £11.8 billion strong portfolio of property
located at primary location in greater London.
Sainsbury has purchasing property to build their super
market and convenience store near societies which is
occupied by upper or upper middle class family. This process
increases liabilities of the company along with their
inventory. But, it would help Sainsbury in long run to build
strong relationship with target upper class individuals of
society.
Gross profit
margin
The Sainsbury is able to manage their margin of gross profit
in 0.05%. This margin bring increased revenue to the
company which enhances their ability to earn more profit.
Financial
competences Return on
capital
employed
Sainsbury group plc shows that the capital use by them is
more efficiently adopted by Sainsbury than their competitors.
This increases the value of their shares. Also, by Tesco's
horse meat scandal the company Sainsbury capital employed
increases because the company able to manage their expenses
but it also leads to increase in their operating profit.
Long term
debt analysis
The Sainsbury plc due to their financial strategy for longer
duration helps the company to repay the debt within more
7

time and flexible manner. Also, the long term financial
policies enables stability on long term to access decreasing in
long term cost of capital. This debt is helpful for their growth
both in online and physical stores.
Human
resource
competences
Pre tax profit
margin
Sainsbury pre tax profit margin falls almost 0.3 % over 4
years from 2009 to 2013. The major reason behind this is that
Sainsbury was enabling more expenditure in administration
and finance. The Sainsbury is attaining success due to their
quality food offering to customers. To making their position
stronger the company aligned with ethical standards which
lead them towards second position among market of UK.
Also, the company also won award “The Grosser Award
2008” for representing the greenest super market all around
the world.
The internal analysis depicts certain strengths and weaknesses which derives from
competences and resources will be as follows :
Strengths
 The good quality of products offers by company creates their value among customers and
able to attain competitive advantage against rivalries.
 Meal tickets for children enables the company to attain loyal customers which is one of
the biggest strength of company Sainsbury group plc as this tickets is rare which attracts
many customers towards them (Haleem, and Jehangir, 2017).
 Also, Sainsbury is able to create a strong brand image which enables them to attain their
target and organisational goal with efficiency.
 The project execution track record helps the company to develop their strength for
attaining sustainable financial position. Along with it the company also able to adopt
different product lines due to their portfolio which assist them in attaining synergy which
is their core strength.
8

 The Sainsbury has purchased property for development of supermarket expansion which
is at convenience to the upper and upper – middle class of families. This enable strength
of building good and strong relationship with upper class customers.
 The increase in revenue which is brought by gross profit margin increases ability of
company to earn more profit.
 Sainsbury in order to attain financial strength use their capital in efficient manner which
is better than their competitors through this they are able to manage their operating
expenses.
 One of the vital strength of Sainsbury is that the company is able to manage their long
term debt and also manage their growth of physical and online stores efficiently. This is
the core competency of Sainsbury because company is financially stable. Expenditure of Sainsbury in finance and administration is very high due to which
company is able to manage their quality of products in appropriate manner.
Weaknesses
 The Sainsbury is operating their activities in high competitive environment which
depletes their performance and profitability as there are numerous competitors available
in market in which company prevails (Al Hashmi and Cooling, 2018).
QUESTION 3 : Strategy evaluation
Suitability
The merger of Sainsbury with ASDA is suitable by following opportunities and strengths
company which suits the best for performing this strategy. They are :
The Sainsbury group due to long term debt able to repay them in flexible manner. This
helps the company to become financial stable better than other rivalries. Along with this strength,
an opportunity identified that the Brexit directly impacts on political and economic conditions of
UK. For this the company in order to gain competitive advantage is suitable to merge with
ASDA which enables both of them to maintain their position and also efficiently use their capital
in profitable manner. This will also create a growth opportunity for them as they get in contact
with new set of customers which enhances their reputation as well as profitability. Both of these
internal and external issues are co relating with each other. Therefore, merger of Sainsbury group
with ASDA is suitable strategy to be adopted by company to enhance their profitability and to
attain success in competitive environment.
9

Acceptability
The major groups of stakeholders in Sainsbury group plc are suppliers, customers,
owners, trade unions and colleagues. According to the power / interest matrix these stakeholders
will fall under :
 Keep satisfied - Customers
 Manage closely - Owners
 Monitor - Colleagues
 Keep informed – Trade union and Suppliers
Out of all the five stakeholders only three affects from this corporate strategy of merger
with ASDA. They are Suppliers, customers and colleagues.
Suppliers – The supplies affects from companies merger with Asda as they need to
increase their supply of raw material. Both the companies have large number of suppliers which
are differential by their pricing and already have high bargaining power (Proposed Sainsbury
group plc and Asda merger, 2019) . They both have fair track record of strengthening their
relationship with small suppliers. So, there is a growth opportunity for small suppliers by this
merger. Measuring in power / interest matrix, the suppliers interest is very high but power is low.
Thus, they will be keep informed about all the corporate actions. The merger will be accepted
from them because of their strong relationship with both the company.
Customers – Both the company Asda and Sainsbury group accomplishing their task very
hard for responding for the adapting behaviour of individuals and market forces. They make
continuous efforts for quality improvement of their products and services. The merger enables
customer to propose their distinctive needs. Also, the merger is beneficial for them because they
will get better and cheap products along with wider availability of choices of products (Proposed
Sainsbury group plc and Asda merger, 2019). Along with it, the customers will also able to shop
more flexibly than before from both of the physical as well as online stores of Sainsbury and
Asda. Measuring with power / interest matrix, the customer has the low level of taking interest in
decision making of company but they have high power. Thus, they will be kept satisfied by
performing all the deeds and activities of company for activity of merger. Therefore, merger
offering them several benefits and offers which enables them and reflects acceptability from
them.
10

Colleagues – The colleagues of both company that is Sainsbury group and Asda will able
to be a part of many opportunities which will draw their career. Also, there will be more stores
opening prior merger will lead to creation of more employment opportunities for them. Apart
from this, the colleagues working in Asda and Sainsbury's will able to use technologies,
expertise and knowledge of each other which assist them in their self development (Impact on
staff, shareholders and customers, 2019). The colleagues in power / interest matrix have low
power and low interest. Thus, they will monitor the activities undertaken in the company. Along
with it, merger avail them benefits of promotion and development for with they will accept this
corporate strategy.
Feasibility
Sainsbury group plc will need skill of innovation and flexibility for dealing with other
company which is Asda. Also, the company need to train their employees to manager work with
employees of Asda. Along with it, company need to share their machineries and market to
strengthen their corporate decision. The company is financial stable which is very essential
element of merger.
11