In this brief I will be looking at opportunities for growth in the retail sector for the company Sainsbury's. Sainsbury's Supermarkets Ltd, is the third largest chain of supermarkets in the united kingdom, it is also the longest standing major food retailing chain, having opened its first store in 1869 (www.j-sainsbury.co.uk, 2009), Sainsbury's serves 16 million customers each week in 455 supermarkets and 301 convenience stores across the country. The company employs 148,000 colleagues committed to delivering 'Great Food at Fair Prices'. In recent years Sainsbury's has seen very healthy growth s in recent years (TNS, 2009) and has explored various markets such as, insurance, banking electronics, and clothing. Competition is extremely strong in the supermarket industry with market leaders Tesco's currently boasting a market share of 30.7% (TNS global website, 2009) Second in line Asda hold a 17.3% share in the market (Asda corporate website,2009). Sainsbury's currently holds a 16% share in the market (www.j-sainsbury.co.uk, 2009). Other competitors in the market include; Morrison's, Aldi, Lidle, co-op, etc and all create an extremely competitive environment.
Sainsbury's amongst other supermarkets have been considerably successful despite the recent economic recession (Telegraph, 2009), however in recent months, despite a growth in profits market share in the company has fallen. It has been reported that eleven million pounds of spending was switched from Sainsbury's to its competitors in the twelve weeks to November (Jennifer Creedy, 2009). The report shows that Sainsbury's is being squeezed at both ends, with budget shoppers switching to Aldi, and Consumers shopping for luxury switching to Waitrose (Mintel, 2009). Recently the company has pushed its range of non-food goods releasing a new catalogue dedicated to non-food products such as clothing, electrical etc (Kathy Sandler, 2009).
Sainsbury's are in a very strong position in the market, however face strong competition from rival companies, the company will be carefully considering its strategic options for the coming years in order to continue growth. The company will be influenced by many factors and in order to assess how these influences will affect the company, a PESTEL analysis of the macro environment in which the company operates will be necessary, I will also be conducting a SWOT analysis of the company.
As identified in the PESTEL analysis, Sainsbury's is currently facing the pressures of globalisation as well as ongoing investigations into price fixing which could damage the consumers relationship with the company as they may feel cheated if Sainsbury's is found to be price fixing, this could be damaging to the company as one of the company's biggest strengths is its relationship with its customers. The company is operating in an increasingly difficult market, with the increasing global food prices resulting in higher purchasing costs for the company, also increasing fuel prices will have a direct affect throughout the supply chain of the company potentially leading to the increase being passed on to the consumer this is identified as a threat to the company. Sainsbury's also face pressure from rival Tesco who have already opened stores in many countries across Europe. Sainsbury's is not currently present in other markets other than the UK , this has been identified as a weakness in the companies SWOT analysis however, this could also be a potential opportunity if Sainsbury's can break into markets outside of the UK. Sainsbury's do use an online shopping facility available to the consumer, It is predicted that by 2011 online retail sales in Europe will have reached 263bn Euros' (The Economist, 2007). with British shoppers accounting for more than a third of all revenue. The Internet accounts for 8% of global advertising spend and is growing rapidly. If used cleverly, as identified in the SWOT and PESTEL analysis Sainsbury's can leverage the internet to its advantage.
Sainsbury's are putting particular emphasis on fresh, easy style cooking. This serves an opportunity for Sainsbury's to encourage new recipes and unfussy eating. As identified in the environmental factors, there is an emphasis on big companies in reducing carbon footprint and increasing energy efficiency. Sainsbury's are well placed on green and environmental issues due to its various recent initiatives, like buying fair-trade bananas. As identified in the SWOT analysis of the company. legal factors that may affect the company include very stringent food and drinks, Sainsbury's will have to follow more and more packaging and labelling policies to deal with these also due to its interests in financial services, there is ever more legal scrutiny in the operations of Sainsbury bank, these could add to the company's financial burdens.
Sainsbury's will be focusing on keeping costs down so it can pass these savings on to the consumer, my PESTEL and SWOT analysis have show that the company is operating in a difficult environment, however there are opportunities and strengths that the company need to utilize in order to grow the business.
“The Mission Statement of an Organisation is a short but complete description of the overall purpose and intentions of that Organisation” (Marilyn A. Stone and John Desmond, 2007, pg399). The mission statement clarifies the company's prime objectives and encapsulates core values. My proposed mission statement for Sainsbury's is;
“To offer the best in customer service delivering exceptional products at exceptional prices, through working 'faster, simpler and together"
I believe that this mission statement gives a good overview on what Sainsbury's intentions and values are, it shows that the company is dedicated to its relationship with the customer and will strive to provide quality products at competitive prices. It also implying that the company is providing more than just food by stating that the company will be delivering “exceptional products”. I believe that this gives the company a good strategic view in relation to its investment into non food products.
When a business is looking to expand or change its field in the market, then there are an array of tools available to it to help the company choose the correct strategic approach. Using a strategic approach such as the Ansoff Model or Matrix, helps the company to evaluate their options and choose the one that suits the company's situation best, and gives the business the best return on the potentially considerable investment that it will need to make. (Lynch, R 2003).
(Mind tools, 2009)
The Ansoff matrix essentially shows a business the risk in which a particular strategy will expose it to, the idea being that each time the business moves into a new quadrant (horizontally or vertically) there is an increase in risk. When applying the Ansoff matrix to Sainsbury's strategic options it can be seen that the company will not be completely moving into a different quadrant of the matrix, this is because the company has previously been selling non food products, however by investing heavily and making the non foods section a much larger part of the business, they will be exposing themselves to further competition from existing companies that sell similar non food products such as, clothing and electronics. Sainsbury's will be looking to place the company in the diversification quadrant of the model by exploring markets that are unrelated to the company's core market.
The Ansoff matrix is a useful tool however although it is a useful way of structuring the options available, it does not in itself provide many useful indicators of which option to choose in what circumstances. So its value lies in structuring the problem rather than solving it. (Lynch, R 2003)
Another popular approach to business strategy is Porter's generic strategies, it is described as a category scheme consisting of three general types of strategies that are commonly used by businesses to achieve and maintain competitive advantage. These three generic strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope is a demand-side dimension and looks at the size and composition of the market you intend to target. (Mintzberg, H, Quinn, J,B, Ghoshal, S, 1999). The three generic types of strategy are; cost leadership, differentiation, and market segmentation (or focus). Market segmentation is narrow in scope while both cost leadership and differentiation are relatively broad in market scope.
Sainsbury's focus is to deliver high quality products at competitive prices, however due to the nature of the oligopoly market, it is difficult for Sainsbury's to compete on price, so it will be more beneficial to the company to retain brand image, in order to retain customers. Sainsbury's should gain its competitive advantage through the use of promotional offers, introductory of and loyalty benefits for the consumer, as well as quality of service and availability of products, also when developing or introducing any new products Sainsbury's will also have to plan using the theory of product life cycle, this theory suggests that every product will go through several stages of “life” with each stage presenting the company with different challenges that must be met with different marketing approaches. By understanding a product's position in the PLC, Sainsbury's may be able to develop more effective plans.
An important part of developing a new product or service is innovation. Innovation typically adds value, innovation may however have a negative or destructive effect as new developments clear away or change old organizational forms and practices(Oliver, G, 1990) Sainsbury's amongst other supermarkets innovate by exploring new markets and delivering them to the customer in new innovative ways through the use of promotions, loyalty and various other tactics. Innovation can be vital to a companies survival because organizations that do not innovate effectively may be destroyed by those that do. The key stages of new product development are,
• Idea generation - via market research, both internal and external sources; staff, sales force, customers, consultants.
• Idea evaluation and screening - match ideas with company objectives; income potential, technical/legal feasibility, company image.
• Business analysis - evaluate size/growth of market (product life cycle), competitive activity, costs of development/marketing, projected sales/profits/cash flow.
• Concept development - what are main product features, benefits, product positioning.
• Testing - test market product for consumer reaction and feedback; limit testing to deter competition; test in two scenarios i.e. consumer panel and limited regional launch.
• Technical implimentation - supplier collaboration, logistics plan, department scheduling, resource estimation
• Commercialization - launch of the product, advertising, fill the distribution pipeline with products.
• New product pricing - Value Analysis (internal & external),Competition and alternative competitive technologies, Differing value segments (price, value, and need), Product Costs (fixed & variable), Forecast of unit volumes.
The new product/service I will be proposing to the company is a mobile phone network service service, this will be launch alongside the push of non food products. Sainsbury's already sell many mobiles, however do not offer a network and only sell these phones through other networks such as orange and O2.
A process known as STP (Segmenting, targeting, positioning) is a useful tool for businesses when developing new productions and identifying target markets.“Market segmentation concerns the subdivision of markets. It is overt recognition that consumers are not homogeneous, and several demand schedules may operate in the same market.”(Oliver, G 1990). Identifying groups of potential buyers who have similar needs or characteristics is important when developing new products or services. Sainsbury's mobile is a service that will span a number of market segments as a large percentage of the population own or have an interest in mobile phones (Winder, D 2008). with such a large percentage of the population using mobile phones Sainsbury's will have target markets demographic and geographic and across many age's. Sainsbury's should aim to provide a wide range of mobile phones with different features which target different customers in terms of their communication needs and wants. This is then complemented by a range of mobile phone tariffs, or price plans, created to suit the different phone usage behaviour of customers in the market.
Targeting is the second stage of the STP process. After the market has been separated into its segments, a company can select a segment or series of segments and 'target' them. Resources and effort will be targeted at the chosen segments. Sainsbury's will target the different segments by running promotions and loyalty schemes, for example, in store spending could be rewarded with call time or text messages using a loyalty points system. The company should adopt a multi-segment approach, this would mean that they could target different segments using different type of phones and tariffs, so for example, Sainsbury's could offer business tariffs that are suitable to people who use their phones for business.
The third and final part of the (STP) process is 'positioning.' positioning is a useful tool to businesses. After segmenting a market and then targeting a consumer, a business would proceed to position a product within that market. This consists of maintaining a clear and appropriate positive image of the the product or service in the minds of the consumers. This helps to differentiate the product from current and potential competing products (Desmond. J and Stone. M.A, 2007). There are five stages to positioning a companies product;
1. Identify key product characteristics.
2. Draw a perceptual map.
3. Decide on a competitive strategy.
4. Design product attributes and associated imagery.
5. Sustain a competitive advantage.
The marketing mix
When launching any new product it is important for any business to consider the marketing mix and all of its elements, this will aid the business to compile a 12 month plan for the product from when it is launched. The mix consists of 7 elements;
Price - The price of a product or service will determine how consumers perceive it, reflect on its brand positioning, influence the choice of marketing channel, affect how it is promoted and have an impact on the level of customer service extpected by target customer (Desmond. J and Stone. M.A, 2007 pg265). there are many ways in which a company can price a product or service, in this situation i would recomend that Sainsbury's set prices competitivly low, the company could price tariffs low and offer loyalty points for using the network for example, every text message sent would earn one nectar point, 1000 nectar points earns the customer money off in store. This will also give the customer the incentive to shop in Sainsbury's stores. When the product is launched i would recomend that prices are set artificialy low in order to penetrate the market and gain a substantial customer base.
Place - Products or services have to reach their target consumer to be consumed. Place is also known as channel, distribution, or intermediary. It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer (Desmond. J and Stone. M.A, 2007 pg338). Distributaion of the mobile network will be very important, the network coverage must be good otherwise customers will not be happy with the service and may switch to a competitor.
Product - I many cases the product is simply the tangible, physical entity that the consumer may be buying, however there are in fact three aspects of a product that a compay such as Sainsbury's need to consider, these are;
* The core product - the actual benifit of the product, the benifit of Sainsbury's mobile will be the access of a mobile network through a mobile device able to make and recieve calls and texts from other mobile and land line devices.
* The actual product - This will be the mobile phone and the quality of the network coverage its self.
* The augmented product - For Sainsburs's mobile this will be the added value of the nectar reward system, aswell as customer care and any other after sales services. (Desmond. J and Stone. M.A, 2007 pg225)
Other things to consider when looking at product is the product life cycle.
• PLC - After a period of development a product is introduced or launched into the market; it gains more and more customers as it grows; eventually the market stabilises and the product becomes mature; then after a period of time the product is overtaken by development and the introduction of superior competitors, it goes into decline and is eventually withdrawn. When planning for the products life cycle Sainsbury's should consider that there may be need for innovation once the product has matured..
Promotion - This is all of the tools available to the company to achieve market communication, Sainsbury's may choose to use a mixture of all of the tools available however i would suggest that the company focus on advertising the service effectively as advertising is used to develop attitudes, create awareness, and transmit information in order to gain a response from the target market.
Physical evidence - This will be the material part of the service such as the packaging of the mobile phones, internet sites, any paper work sent to the customer, use of the sainsbury's brand logo.
People - Sainsbury's should set up a new division dedicated to the needs of the new service and products, it is important that the staff who will be directly selling the mobile phones and the service will be trained in the technological area that the are selling in.
Process - process is an element of service that sees the customer experiencing an organisation's offering. It's best viewed as something that your customer participates in at different points in time. So it will be important that Sainsbury's;
* Deliver value through all elements of the marketing mix. Process, physical evidence and people enhance services.
* Feedback can be taken and the mix can be altered.
* Customers are retained, and other serves or products are extended and marked to them.
* The process itself can be tailored to the needs of different individuals, experiencing a similar service at the same time.(The times 100, 2009).
Sainsbury's should plan to have a substantial port folio of customers within 12 months of the launch of the product, the new service should be recieving posative feed back from consumer groups and achieveing substatial profits for the company. Within 12 months of the launch of the service Sainsbury's mobile shoulb be well established in the market and using loyalty promotions as a competitive advantage over other mobile network operators who do not have this option, predatory pricing should no longer be needed at this point.
Marketing control is the process of monitoring the proposed plans as they proceed and adjusting where necessary. Control involves measurement, evaluation, and monitoring. Resources are scarce and costly so it is important to control marketing plans. Control involves setting standards. The company will then compare actual progress against the standards. Corrective action (if any) is then taken. If corrective action is taken, an investigation will also need to be undertaken to establish precisely why the difference occurred.
Academic text books
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Lynch, R, (2003) Corporate Strategy, Third Edition, Prentice Hall.
Ghoshal, S, Mintzberg, H Quinn, J,B, (1999) The Strategy process, Revised European edition, Prentice hall
Oliver, G, (1990) Marketing today, Third edition, Prentice hall.
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• Sainsbury's has had thirteen straight quarters of growth showing real turnaround in its business. Even for 2007 it has shown an increase of 7% in turnover and a huge 450% increase in profit after tax.
• It has an extremely experienced leadership team with Justin King, its Chief Executive receiving great praise for his work in Sainsbury's.
• Sainsbury's seems to be very well placed on green and environmental issues due to its various recent initiatives, like buying fair-trade bananas. Furthermore its help in closing down gangmaster has had a positive effect on the public in general. It has a positive consumer brand and it's liked by both green activists and consumers.
• It is one supermarket chain that has a clear celebrity endorsing products, leading to increased sales. "With Jamie Oliver, it has been simple for Sainsbury's to see uplifts in sales of specific ingredients that have been featured in ad campaigns.
• The takeover bid by the Qataris Private equity firm last year can have some implications as people are gravitating towards British companies and the prospect of Sainsbury's being governed by a foreign firm can lead to consumers switching loyalties.
• Unlike Tesco's expansion plan, Sainsbury's is not present in markets other than the UK. This can lead to trouble especially if there is some problem within food retailing in the UK or if there needs to be a source of extra growth.
• Sainsbury's alternative business presents a great opportunity for future growth. Its investments in property and a goal of £40 million profit through its bank seem like a good strategy to pursue
• Online sales are a great opportunity as well, since online margins are higher and investments are not huge.
• There needs to be continuous heavy investment in environmental and green issues without immediate benefits. The problem lies in maintaining a balance e.g. Bio-fuel is an important tool to curb global emissions and its use affects Sainsbury's supply chain directly, so Sainsbury's should support it. However, a spurt in bio-fuels has made corn dearer affecting its prices within the UK and making Sainsbury's consumers bear the brunt.
• Sainsbury's operations are subject to a broad spectrum of regulatory requirements particularly in relation to planning, competition and environmental issues, employment, pensions and tax laws and in terms of regulations over the group's products and services.
• Increasing globalization, presents a challenge as well as an opportunity to Sainsbury's. The challenge will be to compete against unknown forces and to source the best quality/financially viable products from world over. Sainsbury's can enter the markets of emerging companies through joint ventures or partnerships to explore these new markets, although it does not have any plans on the horizon to do so.
• The ongoing investigation of price fixing amongst the big four retailers within the UK can have some negative impact to the industry in general and Sainsbury's in particular, as it is at the forefront of this allegation. Although Sainsbury's is very well established among consumers, these allegations can lead to a negative public image as the consumers might feel cheated.
• The rapidly increasing global food crisis has increased food prices all over the world, which will result in rising purchasing costs for Sainsbury's. This will have an impact on the margins of the organisation and might lead to passing over the cost to consumers by increasing prices of most things in the supermarket. Furthermore, rising fuel costs will have implications right throughout the supply chain of Sainsbury's leading to an overall situation of increasing prices.
• The credit crunch can have a two way impact on Sainsbury's as it also runs a financial services company with HBOS. The credit crunch might decrease the purchasing power of consumers and though they will still buy the essentials they may be more cautious. They may also spend less on luxury items, something that has a greater profit margin for Sainsbury's. As far the Sainsbury bank is concerned, the credit crunch directly affects its ability to provide credit especially as it is not an established name in the financial services industry.
• Nowadays there seems to be more emphasis on fresh, easy style cooking. This serves an opportunity for Sainsbury's to encourage new recipes and unfussy eating.
• There has been a huge emphasis by the government to promote healthy eating, primarily due to the increasing level of obesity within the UK. This has lead to many consumers to shift towards healthier food. This presents an opportunity to Sainsbury's to stock up with more healthy food or create healthier foods at a cheaper price than other manufacturers so as to benefit from this new trend.
• The Internet phenomenon seems to be ever growing within western countries. It is predicted that by 2011 online retail sales in Europe will have reached Eur263bn, with British shoppers accounting for more than a third of all revenue. The Internet accounts for 8% of global advertising spend and is growing rapidly. If used cleverly, Sainsbury's can leverage the internet to its advantage. Competitors like Tesco use their own online delivery model successfully. However, specialist delivery companies like Ocado provide an alternative for the outsourcing of non-core work.
• One of the downsides of supermarket shopping is the queuing system customers often find themselves in at the checkout. Self checkout machines, employed by Asda and Tesco, can help solve this problem, especially for customers who have to queue up for very few items. Furthermore, self checkout machines could help in Sainsbury's opening stores for 24 hours which might help boost sales.
• A lot of emphasis on companies has been on the role of big companies in reducing carbon footprint and increasing energy efficiency. This is just not a backburner issue anymore and every firm will have to prove they are reducing their impact on the environment, meaning Sainsbury's will have to invest more on green issues.
• Other important ethical issues, like sale of organic food and the ethical treatment of animals, clearly effect Sainsbury's on various levels. The growing importance of such issues means that they will have to cater to those consumers as well as to consumers governed by price. This is a sensitive issue as they will have to balance their public stand on environment without losing consumers due to the increase in prices.
• With ever stringent laws on food and drinks, Sainsbury's will have to follow more and more packaging and labeling policies to deal with these, which will be an additional financial burden on the company.
• Due to its interests in financial services, there is ever more legal scrutiny in the operations of Sainsbury bank which means there is more responsibility regarding legal compliance and other risk measures.