a)

INTRODUCTION

Sainsbury's is the second largest chain of supermarkets in the United Kingdom with a

share of the UK supermarket sector of 16.9%. Founded in 1869 by John James Sainsbury

with a shop in Drury Lane, London, the company became the largest grocery retailer in 1922,

was an early adopter of self-service retailing in the UK, and had its heyday during the 1980s.

In 1995, Tesco overtook Sainsbury's to become the market leader, and Asda became the

second largest in 2003, demoting Sainsbury's to third place for most of the subsequent period

until 2014, when Sainsbury's regained 2nd place. The holding company, J Sainsbury plc, is

split into three divisions, Sainsbury's Supermarkets Ltd, Sainsbury's Convenience Stores Ltd

(Sainsbury's Local), and Sainsbury's Bank. The group's head office is in the Sainsbury's Store

Support Centre in Holborn Circus, City of London. The group also has interests in property.

PESTLE analysis of Sainsbury's

Political factors

Sainsbury's is a company which is based in the UK and Ireland thus Sainsbury's performance

is highly influenced by the political factors in this country. An increased globalization could

pose as both an opportunity and a challenge to Sainsbury's. It is a challenge in such that it

would have to compete against unknown forces and to find the sources of the products with

economical and quality values. The corporation tax is at 28% unlike a few years ago when it

was 30%. This means that Sainsbury's along with other big organisations would save a huge

sum of money because of this lower rate of corporation tax.

Economical factors

The rising cost of fuels is one of the biggest economical factors that might be affecting

Sainsbury's. This rise in cost means that it affects the supply chain of Sainsbury's causing the

product prices to increase. The global food crisis which is ongoing would also result in

Sainsbury's having to increase the cost of their products.

Social factors

As explained in the opportunities part of the SWOT analysis, the increasing social trend in

healthier foods is a great opportunity for Sainsbury's. It is the social trend like this that

Sainsbury's would have to look out for in order to keep up with the consumers.

Technological

The correct use of correct technologies is an absolute must for retailers like Sainsbury's.

Being a big retailer, there are many things which are just not possible to be done manually.

Examples of this include the checkout system and the inventory management. In order to

keep up, Sainsbury's all over the country are having to constantly upgrade their technologies

such as introducing self checkouts, upgrading to more efficiently scanning checkouts,

computerised stock controlling etc. Having technologies such as the computerised checkouts

means that there is a lesser margin for human errors and less paperwork.

Environmental

The reduction of carbon footprint is has been given a lot of emphasis to big companies.

Companies like Sainsbury's can contribute a lot to the reduction of carbon footprint thus

Sainsbury's have to prove that they are not causing a lot of impact on the environment. To do

this Sainsbury's would have to put in more towards the green issue.

Legal

Sainsbury's is well bounded by many legal issues such as the national minimum wage policy,

alcohol selling age legislations, discrimination and fair treatment legislations etc. For the

wellbeing of the organisation, Sainsbury's would have to be pursuing these legislations;

failing to do so might follow many types of consequences. Sainsbury's have to maintain

different types of legal laws which include, consumer laws, competition laws, employment

laws and health and safety laws.

SWOT analysis

The SWOT analysis for Sainsbury’s could be performed and this would focus on:

Strengths Weaknesses

Strong brand name

A large number of employees

Strong presence across the UK

Solid customer base

Good reputation

Many competitors in the market

Loyalty schemes introduced are not

implemented appropriately so the

major benefits of the scheme remain

uncertain

More focus on management strategy

and better customer service could be

recommended

Sainsbury’s should conduct thorough

market research to introduce cheaper

products than other supermarkets

Opportunities Threats

Large consumer base especially

during Christmas and festivals

Sainsbury’s is already one of the main

competitors and major retail store in

the UK

Opportunities in terms of online

marketing and financial services are

abundant

Competition from other companies

such as Tesco and Asda

Price of Sainsbury’s products may be

higher than competitors

Importance of building long term

customer relationships as customers

may be driven away by competitors

b)

Porter's five forces analysis of Sainsbury's

Bargaining Power of Suppliers

Supplier power is an important part of the Porters five forces model. Bargaining power of

suppliers in the Sainsbury's would be relatively very high. Supplier power of smaller

suppliers would be smaller than big suppliers because of their sales volumes on dependence

on these supermarkets. In other hand big company like Unilever, Cadbury etc. not mainly

depend on one particular supermarket. But if this brand product are not sale by Sainsbury's

consumer will shift to another market so sales are down and also loss its customers. UK

based suppliers are also threatened by the growing ability of large retailers to source their

products from abroad at cheaper deals. The relationship with sellers can have similar effects

in constraining the strategic freedom of the company and in influencing its margins. One of

the advantages of Sainsbury's that they can dictate the price they pay the supplier. If the

supplier does not reduce the price, they will be left with a much smaller market for their

produce.

The Threat of Substitutes

‘General substitution is able to reduce demand for a particular product, as there is a threat of

consumers switching to the alternatives' Porter M. (1980). The threat of substitutes in the

food retail industry is a low one simply because consumers view it as a necessity, especially

in the developed world and increasingly in the emerging markets. Tesco, Asda , Morisons ,

Iceland , Poundland are the main substitute for the Sainsbury's. some small retailer also sale

good quality product in low price In this case Sainsbury's are trying to acquire existing small-

scale operations and opening Metro and Express stores in local towns and city centers.

Bargaining Power of buyers

Porter theorized that the more products that become standardized or undifferentiated, the

lower the switching cost, and hence, more power is yielded to buyers' Porter M. (1980).

Buyer power is high in the Sainsbury's, simply due to the presence of so many competitors

selling the same products. Sainsbury's policy like famous loyalty card - Club card attracts the

customer and significantly increases the profitability of Sainsbury's business. Nowadays,

customer needs good customer service, low price products, better choices, constant flow of

in-store promotions all this strategy is provided by the Sainsbury's. Buyer power also acts to

force prices down. If beans are too expensive in Tesco, buyers will exercise their power and

move to Sainsbury.

Treat of new entrants

The costs of entering in to retail market need the low budget so it is relatively easy for new

entrants. Sainsbury's may have cornered the market for certain goods; the new supermarket

will not be able to find cheap, reliable suppliers. Sainsbury's also has the advantage of

economies of scale. The amount it pays suppliers, per-item, is a lot less than the corner shop.

It achieves this, partly, through buying large volumes of goods. A small supermarket chain

can only buy a relatively small volume of goods, at greater expense. The UK grocery market

is primary dominated by few competitors, including three major brands of Tesco, Asda, and

Sainsbury's and a small chains of Somerfield, Waitrose and Budgens. This is also evident in

huge investments done by large chains, such as Sainsbury's, in advanced technology for

checkouts and stock control systems that impact new entrants and the existing ones.

Determinants of Rivalry among Existing

This force describes the intensity of competition between existing players (companies) in an

industry. High competitive pressure results in pressure on prices, margins, and hence, on

profitability for every single company in the industry. The retail market is extremely

competitive with a very crowded market. Nowadays lots of companies are trying to get into

non food sectors further intensifying the competition. Sainsbury's has a market share of

14.9% in 2007, and its increasing since its restructuring program that started in 2004 (Annual

Report 2007). This is a positive trend but it is behind the Tesco. Showing that there is

considerable distance to cover. Tesco, Asda, and Morrison's are the other three big

supermarket chains in the UK retail sector. All of them have a different competitive

advantage over their competitors. This highly competitive in retail market has fostered an

accelerated level of development, resulting in a situation Sainsbury's have had to be

innovative to maintain and build market share.

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c)