Sainsbury ASDA Merger - Grade: 8 PDF

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SAINSBURY ASDA MERGER Applied Corporate Strategy STRATEGIC REPORT Candidate Name: Candidate ID: Word Count:

TABLE OF CONTENTS INTRODUCTION...........................................................................................................................3 INDUSTRY BACKGROUND.....................................................................................................4 EXTERNAL ANALYSIS................................................................................................................5 INTRODUCTION.......................................................................................................................5 MACRO-ENVIRONMENTAL ANALYSIS...............................................................................7 PESTEL ANALYSIS OF SAINSBURY ASDA MERGER.....................................................7 PORTER FIVE FORCES ANALYSIS OF SAINSBURY ASDA MERGER........................11 OPPORTUNITIES FROM MERGER.......................................................................................13 THREATS FROM MERGER....................................................................................................13 INTERNAL ANALYSIS...............................................................................................................13 STRATEGIC EVALUATION........................................................................................................13

INTRODUCTION This strategic report is prepared over the detailed business analysis of the merger between Sainsbury and ASDA. The highlighted aspects of this strategic report cover the macroenvironmental factors where the light is placed over the concerns of the opportunities and threats from this respective merger. Other than this, the consideration is also placed over the strategic and operational effectiveness of both the organizations, in terms of the core competitiveness and resources, which will add value to their comparative edge over the competitive forces. Lastly, a detailed analysis has been carried over the strategic implementation done after the merger with the aid of the SAFE framework.

INDUSTRY BACKGROUND The companies of consideration for this strategic report involve two companies, Sainsbury and ASDA, both which are operational in the supermarket sector of UK. These organizations are holding their firmness at the second and third spot in the market leadership while the market dominant force is Tesco. Apparently, there are huge number of competitive brands within this industry that includes Morrison, Waitrose, Aldi and others [ CITATION Eli19 \l 1033 ].

[ CITATION Mar19 \l 1033 ]

The firm understanding of the industry is essential for the strategic planning process as well as the strategic implementation concerns to aid in considering the relevant factors.

EXTERNAL ANALYSIS PESTEL ANALYSIS OF SAINSBURY ASDA MERGER There are a list of influences that will place a direct impact over the organization over the merger context for Sainsbury and ASDA which have been described below in their respective regions. POLITICAL The shift in the UK economy due to the aspect of Brexit would leave the local demand patterns of the consumers to arise leaving a competitive edge for Sainsbury to enhance their sales and profit patterns with respect to their merger as well. Correspondingly, the demand in the other countries of the EU will reduce due to rising taxation and customs causing the trade to halt or reduce for Sainsbury ASDA concern too[ CITATION Hun17 \l 1033 ]. The rate of debt in terms of those on government and consumers are high for the operational organizations in UK which includes the scenario for Sainsbury and ASDA. The integration between the two firms reduces the overall concern for this settlement burden that would have been faced individually [ CITATION Far191 \l 1033 ]. ECONOMIC The rise in the contextual scenario of unemployment level and enhancing inflation within the UK economy has left deterioration in the demand and sales pattern for Sainsbury and ASDA. The amalgamation between the two organizations provides an edge to the consumers for increased employment opportunities enhancing their residual income and purchasing power[ CITATION Sid19 \l 1033 ]. The concern of Brexit might cause adverse impacts for the economic situation of UK for timebeing but in the long-run, it will result in the enhancement of the local industry which will provide competitive edge to Sainsbury, ASDA and other supermarket brands of UK. Thus, the amalgamation between Sainsbury and ASDA will witness significant gains in the long-run [ CITATION Bre20 \l 1033 ]. SOCIAL Sainsbury and ASDA have been highly operational with the social practices presenting an exceptional business image in the corporate business environment of UK. The amalgamation of

both these organizations can target to enrich the business contextual image and enhance the customer loyalty for their products [ CITATION Hoo20 \l 1033 ]. The increasing demand for organic products over the rising emphasis of healthy living and healthy eating habits will provide a comparative edge over the merger of Sainsbury and ASDA. The consumer preference for natural food against the junk food items can lead to further gains in the long-run. Further, remarkable customer service at both these organization make it easier to retain the customers [ CITATION Pen19 \l 1033 ]. TECHNOLOGICAL The organizational amount spent over the advancements through automation in the productivity as well as providing assistance at the retail outlets have enhanced over the concern of merger between Sainsbury and ASDA. The expense structure at the research and development sector was massive and further enhanced over the merger which will aid in designing as per the market trend[ CITATION Cha19 \l 1033 ]. The concern of online shopping have enhanced over the last few years providing more ease to the consumers to select and get their desired products delivered at their doorstep. This option can be exercised at Sainsbury and ASDA concluding their merger allowing them to reach a larger number of customers and gain more market share. [ CITATION Sah19 \l 1033 ] ENVIRONMENTAL The rising concern for appropriate disposal of the wastage as well as keeping in concern the element of efficient utilization of scarce resources has urged the management of the two supermarket tycoons to consider the productivity. The operational effectiveness has started taking place within UK over the zero wastage concern. The climatic concerns and regulatory framework over the operations of businesses within UK have to be considered for Sainsbury and ASDA[ CITATION Mat18 \l 1033 ]. The concern of carbon footprint needs to be implemented at the productivity globally since the rising emphasis and in terms of this merger, the practical implementation is already taking place to boost the consumer loyalty and enhance brand image [ CITATION Sab20 \l 1033 ].

There have been a drift in the packaging of the supermarkets where the emphasis is now laid and lawfully it is enforced that the usage of paper or recyclable packing instead of plastic bags should be made. There is a need for Sainsbury and ASDA management to develop an approach by urging the customers to use paper bags or bring their own carriers for picking up their groceries [ CITATION Val19 \l 1033 ]. LEGAL The introduction of new taxation policy over the addition of sugar into the food items, especially the carbonated and other drinks, has urged the supermarket tycoons to reconsider and rephrase their productivity. These concerns need to be highly targeted as a market gap which if fulfilled by the Sainsbury ASDA merger can lead to a comparative edge over other supermarket brands[ CITATION Gem19 \l 1033 ]. Appropriate actions by the government of UK for the promotional campaigns of the sugar-related products, like food and drinks, are restricted which should adversely influence Sainsbury ASDA merger but the aspect should be considered positively where long-term gains are expectable. Furthermore, the element of health issues over the dairy products shall be considered and timely measures should be in place in terms of the precautionary measures to prevent future losses[ CITATION gov19 \l 1033 ]. The consideration of the above highlighted factors will create room for certain opportunities as well as give rise to certain threats which need to be dealt on timely basis by Sainsbury management to prevent any halt in the prosperity of the business.

PORTER FIVE FORCES ANALYSIS OF SAINSBURY ASDA MERGER The following details provide detailed description of the industrial assessment along with the ability of attracting more consumers: BARGAINING POWER OF BUYERS The switching cost within this industry is low due to a large number of substitute brands in the supermarket sector of UK. Furthermore, consumers within this sector are not brand conscious as their preference is over the value for money which can be clearly seen from the consumer preference to supermarkets other than the top fours. This leads to the existence of a moderate level of bargaining power of buyers within the supermarket industry of UK. The threat that has been identified within this force is the ease of switching for the customers which will result as a risk for Sainsbury of losing their customers[ CITATION Den18 \l 1033 ]. BARGAINING POWER OF SUPPLIERS The variety of suppliers existing within this industry is enormous providing Sainsbury with lots of options to opt for when choosing the supplier considering option with the least cost and maximum profitability. Thus, bargaining power of the suppliers is low in terms of exercising their influence over their corporate clients like Sainsbury [ CITATION Vas19 \l 1033 ]. THREAT OF NEW ENTRANTS By considering the majority market share of the top competitive forces within the supermarket industry of UK, it can be stated that the force of new entrants in the supermarket industry is low. The other elements like enormous capital investment, extensive marketing and the presence of massive brands with their high consumer loyalty works as the obstacles for the new entrants. In terms of Sainsbury, there is a greater opportunities of business opulence as well as creating unappealing scenario for the new entrants[CITATION Por20 \l 1033 ]. THREAT OF SUBSTITUTES Though, a large number of substitute brands exist in the supermarket industry of UK, but the consumer preference is to opt for the brand where they can shop everything they need irrespective of the competitive prices of the substitute brands. This leads to a low threat force in this respective area as the consumer preference for Sainsbury will be difficult to be substituted[ CITATION Sou19 \l 1033 ].

RIVALRY BETWEEN COMPETITORS As per the industry background, the competitiveness within this industry is enormous due to the existence of a large number supermarket brands in UK. This often leads to the existence of a battling situation over the pricing especially between the top four notch brands and emerging smaller brands. The competition level have been intensified over the past few years in the UK supermarket industry which can be highlighted and stated that competitive rivalry within the supermarket industry is at moderate ends. The element of a merger between Sainsbury and ASDA can be highlighted as due to this particular element of concern[ CITATION War19 \l 1033 ]. Consideration of the influential power of the consumers, suppliers, competition level, substitute’s availability and new entrants shall be considered along with the above highlighted factors while incorporating the new system of Sainsbury ASDA collaborative operations to succeed without any halt. The threats are in place but utilizing the available opportunities would enable Sainsbury ASDA to outrun the market leader, TESCO.

STRATEGIC VALUE ANALYSIS The organizational framework models have been always in the limelight over the implementation as well as strategic development for the organisation. Several business experts have developed model approaches that can enable an organisation to fully utilize their resources and capabilities targeted to drive out maximum results in terms of productivity enabling them to gain a competitive advantage. Under the traditional resource-based ideology, it is stated that the organisation should focus on those particular resources and capabilities that will enable them to gain a competitive advantage over the competitive forces[ CITATION Gre20 \l 1033 ]. Resources are termed as inputs that are deployed in the organisation to drive the gains from the output refer to effective manner of utilization of those resources. The distribution of resources further extends into tangible as well as the tangible includes corporeal, manpower or monetary elements while intangible include statistics, repute and sound understanding of a particular element[ CITATION Smi18 \l 1033 ].

RESOURCES PROFILE OF SAINSBURY CORPOREAL RESOURCES

At the current date, Sainsbury is operational with an existence of 608 supermarkets around the United Kingdom aside from the presence of 806 convenient shops to accommodate the users in different regions of UK. By the end of the current fiscal year, Sainsbury total assets are valued at £23.541 billion in which the equity proportion is valued at £8.456 billion and property, plant and equipment is valued at £9.708 billion[ CITATION Sai19 \l 1033 ]. MANPOWER RESOURCES

The current workforce volume in Sainsbury stands at 186,900 with an exceptional training and development program always practiced at the company to keep updating the skills and expertise of the workers. The launch of Sainsbury Graduate scheme under the name of 2020 Leaders is also aided to develop future leaders of the company aiming at polishing the young talent [ CITATION Sai19 \l 1033 ].

MONETARY RESOURCES

The latest financial results for Sainsbury exhibited sales revenue of £29.007 billion with an incremental rise of £0.551 billion in contrast to the financial revenue of previous fiscal year. The net profits of Sainsbury earned during the fiscal year 2019 were £0.291 billion and £0.309 billion in 2018 thus leaving a fall of £0.018 billion. The net profit margins for Sainsbury in 2018 and 2019 are as follows: SAINSBURY

2019(£billion)

2018(£billion)

Profit for the year

£0.291

£0.309

Sales Revenue

£29.007

£28.456

Net Profit Margin

1.03%

1.09% [ CITATION Sai19 \l 1033 ]

Considering the financial results of Sainsbury from the above table it can be concluded that there was a reduction in the net profit margins but even in the previous year the profitability of the organisation was not required to enhance the operational effectiveness in order to get healthy profits. NON-PHYSICAL RESOURCES

The valuation of intangible assets held at Sainsbury by the end of the financial tenure of 2019 was £1.044 billion whereas over the previous financial year, the value concluded at £1.072 billion exhibiting a fall of 2.61%. The composition of intangible asset held at Sainsbury included goodwill, computer software, acquired brands and customer relationships. The increasing amount of additions were witnessed in the region of computer software while element of disposals and amortization led to an overall reduction in the net book value of intangible assets. Irrespective of the fact that these assets do not have physical existence but still they are significant for success and prosperity of the organisation as well as enhancing the market value of the business [ CITATION Sai19 \l 1033 ].

SAINSBURY VALUE CHAIN ANALYSIS Value chain analysis is a strategic model used to analyze the internal activities of an organisation and aids the organisation in identifying those activities which hold significant value for building up the reputation as well as enhancing the organizational output. These key activities enable the organization to obtain a comparative advantage or sense of differentiation in the market[ CITATION Zuc18 \l 1033 ]. The following diagram exhibits value chain analysis of Sainsbury with identification of key areas:

Firm’s Infrastructure: 1. Digitalization through scan and go option 2. Check-out self-service based HR Management: 1. Training and Development 2. Performance Appraisal 3. Recruitment and selection Technology: 1. Research and Development 2. Market Sample Testing 3. Nectar Royalty Card Procurement: 1. Buying of raw material, tech expertise and logistics 2. Careful opting of suppliers

Inbound Logistics: 1. Alliance with iForce logistics. 2. Establishing suitable warehouses 3. Automation practically. 4. Rail network with terminals

Operations: 1. Maintenance 2. Racking items on shelves. 3. Banking 4. Retail 5. Quality Control

Outbound Logistics: 1. Handling of orders 2. Appropriate dispatch 3. Delivery through bike 4. Invoicing 5. Green delivery slots

Sales and Marketing: 1. Promotional campaigns 2. Market research 3. Analysis of sales 4. E-commerce selling

After Sale Services: 1. Warranty and support services 2. Return inwards 3. Customer service

With the aid of the above analysis, it can be concluded that the core competencies of Sainsbury included effective planning and implementation of business models, remarkable consumer services, brand loyalty due to the brand image, reducing carbon footprints through green delivery fleets and increased ease over scan and go option[ CITATION Stu20 \l 1033 ].

SAINSBURY’S-ASDA MERGER APPRAISAL During a press conference in 2018, it was released that the merger between Sainsbury's and ASDA will be completed by the end of 2019 reforms that were to be targeted through this merger were as follows: 

Amalgamation of the business frameworks and financial results rising as the dominant force in the UK supermarket industry.



The creation of a pool by sharing knowledge, skills, expertise and core competencies.



Targeting the provision of a distinct portfolio of products.



Improvising the customer perceptions and working towards enhancing the brand image leading to more customer loyalty.



Reducing the level of competition within the market and breaking Tesco dominance [ CITATION BBC20 \l 1033 ].

The integration between the two supermarket giants will result in the amalgamation of human resource expertise that will add on strategic value and corporate gains to the organization in the long-run.

CONCLUSION AND RECOMMENDATIONS Due to the rise in e-commerce markets around the globe, competition level has intensified for supermarket industry of UK as well where threats are witnessed from new entrants including discount shops and online stores. This has drifted the consumers from top notch brands to cheaper but sufficient alternates. This highlights the need for restructuring inside the dominant forces of UK supermarket industry as a mode of survival. Placing light over the strategic analysis as well as the business models of Sainsbury and ASDA, we are able to analyze that several strengths exist within both these organizations which can be amalgamated cover of the loopholes of each other and succeeding without any halt. Irrespective of the element of dominance from Tesco, the strategic implementation as well as the low-pricing strategy enables Sainsbury to older significant healthy position financially.

With the aid of several evidences from various sources, it was found that the core aim of the merger between Sainsbury and ASDA was to reduce the level of competition within the UK supermarket industry. Though, this decision can lead to massive gains for both the organizations but such changes are not easily implemented as critical assessment requires time to respond. Considering the detailed analysis of both these organizations over this prospect of merger, it is advisable that...