Analyzing Sainsbury's Strategic Position in the UK Retail Market

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STRATEGIC MANAGEMENT
Topic: Compare theory and Practice
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Table of Contents
Introduction................................................................................................................. 3
Main analysis.............................................................................................................. 4
Conclusions...............................................................................................................12
Areas of improvement in context of “Sainsbury’s”.....................................................13
References................................................................................................................14
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Introduction
The term “strategic management” refers to a core part of management, which is
concerned with proper management of an organisation’s resources towards
accomplishing its business goals and milestones. In order to sustain in this highly
competitive global market and to serve products and services to their loyal customer
base in long run, companies are adopting effective strategic management tactics and
procedures. Strategic management tactics are designed to improve the
organisational excellence and business competency in market. It allows an
organisation to work with its highest potential and generate maximum profits in
business. Strategic management plan ensures that the company meets its set
business objectives and sustainable competitive advantage effectively.
“Sainsbury’s” is regarded as one of the most popular and successful British
multinational retail organisations throughout the UK, established in 1869, more than
150 years ago by John James Sainsbury. Founder started this retail business with
the aim of serving high quality retail products to global customers. They improved
their business strategy and modified products to capture almost 35 billion global
customers worldwide. Company has almost 1600 stores throughout the world and to
maintain effective service system in those stores, “Sainsbury’s” has employed
192000-trained staffs. In 2018, company generated £28.54 billion in business, where
the net income on the same year was £315 million (sainsburys.co.uk, 2019). In this
study, different aspects of strategic management will be evaluated in context of
“Sainsbury’s.” In this process, Porter’s five forces will be taken into consideration
for appropriate evaluation of strategic concepts and market competitiveness of
“Sainsbury’s.”
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Main analysis
Strategic management is core concept of modern business industry and almost
every single successful business organisation such as “Sainsbury’s” has been
adopting strategic approaches to improve their strategic plans and market position
simultaneously (Ansoff et al., 2018). In this process of strategic management
analysis, companies first analyse and determine their actual market position and
competitiveness level so that they can make effective plan according to their
resource capabilities and financial abilities (Hill et al., 2014).
Porter’s five forces model in general
Porter’s five forces is one of the most popular and useful models, which analyses
and identifies five competitive forces that play impactful role in shaping every
business industry. It is possible to apply this effective model to any type of economic
segment for seeking attractiveness along with high profitability. In simple words, this
model assists business organisations in explaining why various business industries
are able to maintain different profitability levels. In 1980, Mr. Porter introduced this
model for the first time in his Book, named “Competitive Strategy: Creating and
sustaining superior performance”. Since that time, companies are using Porter’s
five forces model for analysing an organisation’s industry structure along with its
corporate strategy. The entire model is based on five vital competitive forces that
influence profitability and sustainability of an organisation.
Threats of new entrants
It is undeniable that new entrants affect an organisation power and sustainability.
Due to numerous entrance of new competitors, global market completion level
increases automatically. Every business industry must have potential barriers for
entrants that they face to start business in new region (Dälken , 20140. For instance,
automobile industry is costly industry and need high amount of investment to start
business within this industry. Hence, new market arrivals will have to face high
financial barriers in terms of entering in the industry. Similarly, UK retail industry has
low entrance barrier and new companies can start their business operations within
minimal investment. An industry with strong barriers is always helpful for existing
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established companies in terms of greater sustainability and more amount of
profitability.
Power of customers
Customers are the most important part of business. Business organisations sell
products to customers and maintain their cash flow. In modern days, almost in every
industry competition level is extremely high. Ventures are providing similar products
with different branding to meet customer needs (Harding, 2017). Due to this
availability of required product manufacturing companies, customers achieve the
highest bargaining power in market. Powerful client base refers that customers have
high negotiation power for lower prices along with effective deals. In most of the
markets and business industries, bargaining power of customers is always high.
When market demand goes high and manufacturing or supply of product is limited,
customers have limited power.
Figure 1: Porter’s five forces model
(Source: Dobbs, 2014)
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Power of suppliers
Power of suppliers is another key competitive force in this model that directly impacts
on the success, sustainability, growth and overall performance of the organisation
altogether. Suppliers are the most responsible organisational part in terms of
resourcing an organisation with all required materialistic resources. In different
industries, suppliers have various levels of contribution and demand. For instance,
resources that are required in retail industry can be availed easily and retail industry
has huge supplier base for resourcing their raw material and others. Due to this
availability of resources and suppliers, suppliers of retail industry has low power in
market, where number of suppliers in gas and energy industry is low and due to less
number of suppliers and unavailability of required resources, suppliers in the same
industry has high demand as well as power (Dobbs, 2014).
Threats of substitute products
Substitute product refers to an item that can be used for completing a task in place of
the actual product. For instance, in place of sweets, chocolate can be used in
dessert. Due to high advancement of technology and globalisation, innovations have
reached a new level and through using this, companies are manufacturing substitute
products. Substitute products decrease the needs and market demand of the actual
product, which actually affects the sustainability of an organisation.
Competitive rivalry level
Competitive rivalry level refers to numbers of existing competitors in market along
with their loyal customer base and market shares. A market with high numbers of
competitors or companies from same industry that are offering similar products to
customers might have to face sustainability issues on long run. On the other hand, a
market, where number of companies from same industry is limited in terms of
meeting customer demands. Different industries have diverse competition level. For
instance, UK retail industry has high competition; mostly because of high numbers of
competitors and low entrance barrier. On the other hand, recycling and garbage
cleaning industry has limited numbers of competitors and low competitive rivalry
level. However, economic condition of the market place and customer perception
also influences increasing or decreasing competitive rivalry level. Like, UK”S
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excellent economic and technical development has attracted local as well as foreign
competitors. Developing countries like Nigeria and its market conditions are not
adequate to attract foreign companies so that competitive rivalry is low.
Critique of the Porter’s five forces model
Porter’s Five Force model is considered as one of the most effective tools to analyse
company’s industry structure on strategic processes. It is one of the best strategic
planning tools. However, many of other modern researchers also have provided their
opinions in context of effectiveness and validity of the traditional strategic analysis
tool in modern business scenario. According to Stead and Stead (2014), the key
advantage of using this model is ease of use. None of technical skill or special
quality is required to use this model. However, strong research capability is highly
required by individuals in terms of conducting this Porter’s five forces model. Another
quality or key factor of this model is it is more specific and accurate compared to
traditional PEST or SWOT analysis.
As opined by Lasserre (2017), excluding the positive sides, this model is also
associated with multiple critical disadvantages. One of the major critical
disadvantages is incompatibility with diversified companies. Different companies
follow various types of market development strategies in terms of increasing their
overall business structure. Diversification is one of the effective market development
strategies. Diversified companies follow this type of strategies. Porter’s model
assumes a single market and single business industry to analyse the market
competitiveness level and other vital external factors.
Diversified companies deal in different business industries and due to this reason, in
case of diversified companies, using Porter’s model of five forces to analyse market
competitiveness is useless. This model disregards the interaction as well as
collusion possibility among suppliers, customers and competitors and the way they
can affect organisational performance and excellence. The model disregards
strategies like strategic alliance, which must be considered as another short falling of
the model (Hill, 2017). Another limitation of this model is that it does not work in case
of government institutions and other non-profit firms. Porter’s model actually works
best in profit-based companies.
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Analysis with respect to “Sainsbury’s”
“Sainsbury’s” is a leading British Retail business chain organisation, conducting
business since, 1869. Company deals with a range of product items starting from
retail to food and many others (sainsburys.co.uk, 2019). Porter’s five forces also can
be used in context of the specified organisation to analyse the market
competitiveness across UK retail market territories. Due to dealing in different
product segments, it is almost impossible to use Porter’s five forces model in terms
of analysing the market competitiveness and company’s position in market. Porter’s
model is useful only in context of profit-oriented and single product industry based
companies. These companies manufacture only single type products and they are
not interested in diversifying their product portfolio. “Sainsbury’s” serves different
categories of product such as supermarket, forecourt shop, food, fashion and many
more to global customers. Due to diversified product portfolio and industry structure,
Porter’s model will not able to assess the actual market competitiveness of the
specified company.
In UK business industry, market competition level has been increasing
spontaneously. In this highly competitive market place, strategic alliance is an
important consideration that allows organisations to gain access to another
organisation’s resources, knowledge and expertises. However, Porter’s model does
not allow companies like “Sainsbury’s” to gain access to another firm’s resources
and expertises. Additionally, the model does not regard the collusion and interactions
among the customers, suppliers and rivals of “Sainsbury’s”. It is not adequate for
appropriate business operations. Through using this model, maximum,
“Sainsbury’s” would be able to list down multiple factors, which either favourable or
unfavourable in terms of organisational performance. However, the model will not
indicate “Sainsbury’s” which factors are helpful and which are not.
Basic application of Porter’s model in context of “Sainsbury’s”
Porter’s five forces model has five competitive forces; competitive rivalry level, power
of customers, power of suppliers, threats of new entrants and threats of substitute
product. All these forces influence business organisations like “Sainsbury’s” as well
as their business excellence, performance, profitability and sustainability altogether.
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In context of “Sainsbury’s,” Porter’s five forces model has been analysed in the
below section.
Threats of new entrants
New entrants refer to small start-ups (Colombelli et al., 2016). In UK retail industry,
entrance barrier is low and new organisations can start their retail business activities
with a minimal investment. Due to this low entrance barrier and arrival of numerous
companies, UK retail industry has become highly competitive and established
companies like “Sainsbury’s” is facing issues to meet their sale target and
profitability milestones effectively. Arnoc, Optimistic Private Limited and others
are new retail foundations in UK aimed at meeting retail needs of customers. These
new companies are increasing market competition for “Sainsbury’s”.
Threats of substitute products
Mostly, “Sainsbury’s” deals in retail industry and substitute products are highly
available in this industry. Similarly, in UK retail industry, threats of substitute are
high. Due to high availability of substitute products, retail product does not able to
keep their market demand in long run (Porter and Heppelmann, 2014). Within a short
time period, companies such as “Sainsbury’s” sell huge amount of products and
meet their set revenue targets. However, this high threat of substitute products might
hamper the organisational profitability and sustainability in long run. “Sainsbury’s”
deals with supermarket products so that substitutes of the company can be local
small shops, stores and other hubs from where customers can fulfil their needs.
Bargaining power of suppliers
Suppliers are the business personnel those directly or indirectly supply all the
required raw materials and others to business organisations. UK retail suppliers have
low demand and power due to high availability of required raw materials and other
necessary items. “Sainsbury’s” is one of the leading British retail chains in today’s
business world and has excellent relation with multiple suppliers. Company has
included suppliers from 60 different countries. Company works closely with their
suppliers to maintain effective relation and continue business operations smoothly in
long run. Most of the suppliers of “Sainsbury’s” are farmers and Grower
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development group members those supply required raw materials and items to
company (sainsburys.co.uk, 2019).
Bargaining power of customers
Almost in every market, customers have highest priority. Customers purchase
products from companies to meet their needs (Dälken, 2014). In retail industry,
customers have multiple options to meet their needs and due to this high availability
of suppliers, customers have the highest power in UK retail industry. “Sainsbury’s”
has used competitive pricing strategy to gather attention of customers and
accelerate sales figure of the firm.
Competitive rivalry level
UK retail business industry has excessive market competition and numerous
numbers of competitors from same industry. “Sainsbury’s” is a leading British retail
firm that has numerous numbers of market competitors such as Primark, Tesco plc,
H&M, Arcadia Group and others (Fatricia, 2016). All these rival competitors
compete with “Sainsbury’s” to achieve sustainable competitive advantage and the
highest position in the business industry. However, this high UK retail market
competition is not good at all for “Sainsbury’s” in terms of accomplishing
sustainability and continuing business in long run.
Success of the five forces
Through making use of these five forces, companies such as “Sainsbury’s” can
achieve multiple benefits. Firstly, this Porter’s five forces model allows
“Sainsbury’s” to analyse, determine and understand the customer bargaining
power in a selected business location. Hence, “Sainsbury’s” can get an overview
regarding the customer perception of the selected business location and set their
pricing strategy accordingly. It allows company capturing customer attractions and
speeding up organisational sales figure simultaneously.
Additionally, Porter’s model provides overview of the suppliers to companies in both
local and foreign locations. Being a multinational retail chain organisation,
“Sainsbury’s” must have numerous local and foreign suppliers. As per the reports,
“Sainsbury’s” resources required raw materials from suppliers of 60 different
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countries (sainsburys.co.uk, 2019). Through utilising Porter’s model, “Sainsbury’s”
would be able to recognise their effective suppliers and their availability along with
power in selected business location. Furthermore, Porter’s model is a competitive
analysis model that represents clear information over market competition and
existing major market competitors so that “Sainsbury’s” can make better business
decision and compete with competitors in an effective manner.
Failure or limitations of the five forces
Excluding the positive sides, Porter’s five faeces model is associated with a range of
disadvantages or drawbacks that can hamper organisational excellence of ventures
like “Sainsbury’s.” Successful and established companies like “Sainsbury’s” use
this model to analyse the actual market competitiveness level and emerging market
competitors along with vital other factors (Grigore, 2014). However, in practical
context, Porter’s model only analyse the upper layer of the market premises and
make conclusion of the analysis, which may not be justified or authentic all the while.
This model does not provide deep analysis in terms of gathering actual market rivalry
related information.
For instance, Porter’s model suggests companies to establish new business or
expand the existing one to low competitive rivalry areas so that companies could
generate highest profits in business. However, in practical context, this statement
cannot be agreed. Less number of potential customers, market saturation, ineffective
business atmosphere, inadequate technical infrastructure and many other vital
factors directly or indirectly are responsible for popularity or non-popularity of a
selected business market (Spiegler, 2016). For instance, market places of
developing countries have low competitive advantage and as per this model, it is
viable to establish or expand business on that location is justified in terms of
accelerating profitability. However, in actual context, this information is not accurate
and due to expansion in inadequate market place, companies like “Sainsbury’s”
might have to face critical barriers in that location in terms of continuing their
business operations and maintaining sales figure and business profitability
altogether. This is because Porter’s model does not provide deep analysis of the
existing market competitiveness.
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Conclusions
From the above section, it can be summarised that strategic management is an
important management concept in terms of sustaining in modern competitive market.
Strategic management tactics are designed to assist an organisation to accelerate
their market position with effectively maintaining organisational profitability.
Successful companies use strategic approaches for greater sustainability in market.
In this context, effective strategic analysis model, named Porter’s Five Forces
analysis have been taken into consideration. An analysis of Porter’s five forces has
been made in context of “Sainsbury’s” to evaluate the effectiveness and validity of
using this model in recent business scenario. Eventually, recommendations have
been provided in the last section to mitigate the current related issues in the
specified organisation
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