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Masters Programmes Assignment Cover Sheet Submitted by: Group 10 | Rohan Harkara 2063899 Yvonne Ayeni 2090482 | Xuelin Cao 2021104 Xinchun Liang 2023878 | Yijin Wu 2020154 Linyu Wang 2027568 Date Sent: 3/12/2020 Module Title: Strategic Management Module Code: IB9JA0 Date/Year of Module: 2020 Submission Deadline: 3/12/2020 20:00 Word Count: 2497 Number of Pages: 26 Question: The Current Strategic Situation of Sainsbury’s

“I declare that this work is entirely my own in accordance with the University's Regulation 11 and the WBS guidelines on plagiarism and collusion. All external references and sources are clearly acknowledged and identified within the contents. No substantial part(s) of the work submitted here has also been submitted by me in other assessments for accredited courses of study, and I acknowledge that if this has been done it may result in me being reported for self-plagiarism and an appropriate reduction in marks may be made when marking this piece of work.”

Table of Contents 1. Introduction ............................................................................................................................. 2 2. External Analysis: Business environment and Competition .............................................. 2 2.1 PESTLE .............................................................................................................................. 2 2.2 Porter’s Five Forces .......................................................................................................... 3 3. Internal Analysis: Resource-based view .............................................................................. 4 3.1 Resources and Capabilities ............................................................................................. 4 4. Competitive Strategy .............................................................................................................. 6 5. Corporate Strategy ................................................................................................................. 8 6. Conclusion and Strategic Recommendations ..................................................................... 9 6.1 Strengthen Cost-Saving/Co-Creation Segment .............................................................. 9 6.2 Improvising Digital Competencies ................................................................................ 10 References................................................................................................................................. 11 Appendices................................................................................................................................ 16

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1. Introduction

Founded in 1869 by John James Sainsbury with a small shop in London, J Sainsbury PLC is the second largest chain of supermarkets in the United Kingdom today with a market share of 16.0% in the grocery industry. The parent company J Sainsbury PLC is split into three divisions: Sainsbury’s Supermarkets Ltd (including convenience shops), Sainsbury’s Bank, and the newly acquired Sainsbury’s Argos.

The integration between Sainsbury’s and Argos has proved progressive, as they continue to By bringing together Sainsbury’s and Argos, 2019-20 has been another year of progress against their strategic priorities as they have continued to turn over their plans to create a multi-channel business. The company’s statutory profit before tax increased by 26% to £255 million (2018-19: £202 million), mainly because of the year on year reduction in exceptional items. Keeping apart the influence of these items, underlying profit before tax (‘UPBT’) decreased by 2% to £586 million (2018-19: £601million). However, intense competition, consumer preferences, and technological development have forced the organization to constantly improve its strategic position in the market to maintain its leading position. With the use of conceptual frameworks, this report will analyse Sainsbury’s internal and external influences, corporate-level strategies, and competitive approaches, to provide further recommendations on cost-saving and digital up-gradation.

2. External Analysis: Business environment and Competition

The section focuses on Sainsbury’s external business with an evaluation of their competitiveness using the PESTLE analysis and Porter’s Five Forces.

2.1 PESTLE

According to the PESTLE analysis (Appendix 1), the macro-environment had a significant impact on Sainsbury’s overall performance. Observing political conditions, for instance, Sainsbury’s may be forced to pay a higher price to import foreign products due to Brexit (Van Reeven, 2016). Although the UK’s economy was hit with the impact of Covid-19 and its ever-changing regulations, 2

it allowed Sainsbury’s to leverage on the one-stop shopping experience they offer to customers. Therefore, as this became increasingly popular due to the pandemic, their margins were boosted in the short run (Devlin, 2020). Furthermore, in terms of environmental conditions, there is a conscious communal shift towards its awareness and healthy eating habits that have shaped how Sainsbury’s operates today. The organization has attempted to adapt to this socio-cultural climate by implementing measures to pay attention to their products’ quality of ingredients, to further reduce their carbon footprint, and invest in more energy-saving technologies (J Sainsbury plc, 2020). Moreover, the digital disruption of technological conditions combined with a highly competitive market forced supermarkets to find innovative ways to comprehend and leverage this phenomenon. Sainsbury’s takes advantage of Nectar’s vast loyalty platform, to better understand their target customers’ needs and even exceed their expectations. The organization has also decided to cut many management jobs to adapt & respond to the shifting tastes towards online shopping (Davies, 2020).

2.2 Porter’s Five Forces

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Supplier Power (Low): As shown in Appendix 3, Sainsbury’s had over 6,500 suppliers (both GFR and GNFR) in 2019 (J Sainsbury plc, 2020), resulting in very low switching costs for them to change their suppliers. Also, there is fierce competition among suppliers who want their products to have a better place on the store shelf. Moreover, the company’s massive orders lead to relatively low supplier bargaining power.

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Buyer power (High): In the information age, there are many different ways for customers to access commodities (E.g.- Tesco, Amazon, etc) and it costs so low for most buyers to obtain information and compare the quality and price of products. Switching merchants becomes easy thereby increasing the buyers' bargaining power. (J Sainsbury plc, 2020).

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Threat of entry (Low/Moderate): Considering the mature grocery industry, even though the switching cost for customers is nearly zero, the entrants need to understand that competitive incumbents such as Sainsbury’s, have already captured most of the market share (Statista, 2020)(Appendix 4). Therefore, the new entrants need to put enormous efforts to gain solid positions. 3

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Threat of substitutes (High): Due to the COVID-19, lockdown prevented people from going out for shopping, leveraging e-commerce’s ability to compete for market share (Appendix 5). Amazon, a massive digital marketer, added a grocery section that offers faster delivery (Appendix 6), broader distribution, and cheaper prices compared to Sainsbury’s (Appendix 7), increasing the threat of substitutes (Statista, 2019).

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Intensity of rivalry (Moderate/High): Considering the current UK market, in addition to the large groceries, small convenience stores are also Sainsbury’s competitors. Due to the duplication of product categories, these small stores meet the customers’ immediate needs hence competing with Sainsbury’s in their gross sales, increasing the intensity of competition.

As strategic managers, it is worth acknowledging that the PESTLE and Porter’s Five Forces analysis (Appendix 2) only reflect the surface of Sainsbury’s core business. The scale and scope of the business are beyond these macroeconomic lenses, where traits such as brand values and leadership also impact the overall performance of the organization.

3. Internal Analysis: Resource-based view

3.1 Resources and Capabilities

The following can be identified as Sainsbury’s core strengths (See Appendix 8, 9, 10):

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IT Resources- IT frolics an important role in Sainsbury’s which helps through Brand Match, Nectar's loyalty programme and the newest initiative Mobile Scan & Go that helps customers to shop using their devices and pay without unloading the trolley.

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Human Resources- To have sustainable employee development, Sainsbury’s has placed an HR Shared Service Centre expanded to include most HR Processes in their Colleague Administration Department and Occupational Health inquiries in a dedicated unit.

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Brand - Out of 32 British companies featured in ‘The global 100’ list of most sustainable corporations, Sainsbury’s is the only featured food retailer (Worldcat, 2020).

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Exclusive Products - Providing categorised food products to prioritise the different types of customers in terms of quality products with reasonable prices, low-fat food consumers, etc. to make them strategically positioned in the market.

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Customer Relationship- Sainsbury’s has always focused on real-time feedback on a range of service measures which helps them to understand what customers think of their quality right away.

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Supplier Relationship - Their Future Brands team keeps working with exclusive brands to build stronger relationships and keeping their suppliers engaged through Sainsbury’s Fairly Traded Programmes and Fair Development Fund.

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Scale of Operation- Sainsbury’s operates 752 supermarkets including 297 convenience stores in the UK. Its scale of operations not only enhances the competitiveness of price but also increases its visibility.

Even though Sainsbury’s is one of the leading companies in the relative market, it has two major weaknesses:

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Advertisement capability- Sainsbury’s spent almost 10% of its annual advertising budget on its Nectar Loyalty Card while Tesco had 10 times the advertising budget than Sainsbury’s.

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Lack of expansion in the developing market- Due to their restructuring plan 2024, they are merging Argos in Sainsbury’s stores but not increasing the number of stores for better convenience as to when compared with Tesco, they are already way ahead in maintaining convenience for customers.

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4. Competitive Strategy

After looking at the strategies pursued by Sainsbury’s, the below analysis is drawn (Appendix 11):

Sainsbury’s leverages hybrid strategy, simultaneously pursuing both a cost-based competitive strategy and a differentiation-based competitive strategy. Competitors who choose this strategy could pursue the lower cost and capture market share to enlarge economies of scale. In any market, there is a significant group who are price-sensitive (Paul, 2019). Hill (1988) concludes that in most markets there is no unique “low-cost” leadership position, which weakens the premise to sustain a competitive advantage exclusively based on low-cost leadership market logic. Sainsbury’s repositioned itself successfully as a reliable supermarket with an affordable price, helping consumers satisfy demands and creating great customer value. Offering an affordable price but not going to the price war is the price advantage that Sainsbury’s holds.

Meanwhile, Sainsbury’s emphasizes differentiation strategies in several dimensions. The corporation positions itself as a high value-added retailer that has a wide food range and an expanding range of non-foods (Wood and Pierson, 2006). Broad and extensive partnerships with multinational suppliers who provide exclusive, innovative, and distinctive products help Sainsbury’s satisfy customer’s high standard needs, enabling them to shop various commodities in good quality. In response to the social climate of health-eating, it surpasses the competitors in meat alternative and plant-based food (J Sainsbury plc, 2020). Sainsbury’s also developed more than 450 supermarkets and 362 convenience stores offline and are constantly improving their online channel to offer fast and reliable home delivery services (J Sainsbury plc, 2020). With one of the most efficient logistics and supply chain systems in the industry, Sainsbury’s ensures that warehousing costs are minimized, and shelves are always stocked (Fernie, Sparks & McKinnon, 2010). SmartShop allows customers to scan their shopping using a hand-held device or their mobile phone now available in over 100 supermarkets helping customers save time and manage their budgets with SmartShop Mobile Pay – a first for the UK grocery market. Customers who use SmartShop are more likely to buy more and to be more loyal to Sainsbury’s. Due to excellent supplier relationships and wise site selection; Sainsbury’s is perceived to have a strong brand image in the eyes of consumers.

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Competitors usually go forward with some of the activities but what sets Sainsbury’s apart is the interlinked combinations of these activities shown below (Figure 1) and therefore the company’s exclusive strategic position in the market.

Figure 1. Sainsbury’s Activity Map

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5. Corporate Strategy

Sainsbury’s portfolio focuses on a diversification strategy within stores, product offerings, financial services, and online shopping (Wood and Pierson, 2006). They invest in advancing digital offers that provide customers with valuable financial information and management in realtime (J Sainsbury plc, 2019). In recent years, the organisation has introduced a new strategy that focuses on mortgage book and commission products to gain profits. Simultaneously, Sainsbury’s online store portfolio has become increasingly important in the retail environment today (Zhang et al., 2010). The company continuously invests in technology advances, to increase efficiency with their online shopping experience with the use of user-friendly “browse, select and pay” features with just a mouse click (J Sainsbury plc, 2019). With Blueyonder as the company’s supply management platform, Sainsbury's has incorporated additional features into their existing supply chain such as AI-based demand forecasting, to support the company's future supply chain initiatives (Sean, 2020). The platform also provides the stores with full supply chain visibility, grooming optimization, and collaboration capabilities, etc. (Blueyonder, 2020). Due to this, the company can effectively respond to changes in customer demand and prevent potential supply chain disruptions.

Moreover, to further enhance their differentiation strategy, Sainsbury's has exclusive partnerships in different segments with unique brands such as Tu and Habitat, where they focus on clothing and furniture respectively (J Sainsbury plc, 2020). By providing customers with these exclusive items, the supermarket has established itself as a "one-stop-shop”, therefore increasing their competitiveness within their product portfolio. Sainsbury’s integration with Argos proved valuable when designing their structural reorganisation plan to save 500 million pounds in costs by 2024 (Davies, 2020). This M&A synergy led to an increase in Sainsbury’s trading intensity, which aided in significant cost savings for the company (BBC News, 2020). However, the impact of the Coronavirus stunted Sainsbury’s expected growth as they suffered loss and closures of 3,500 jobs and 420 Argos stores (BBC News, 2020). Despite this setback, Sainsbury’s implemented a second Argos hub in Lincoln in October, to further progress with their reorganisation objective of 150 Argos outlets by 2024 (Calnan, 2020).

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Furthermore, the Nectar loyalty programme promotes greater connectivity between Sainsbury’s and its customers. As this programme allows them to reward brand-loyal customers, this increases the lock-in effect they have on their customers, therefore increasing the switching costs to other competitors (Amit and Zott, 2001). Hence, this supports Sainsbury’s differentiation strategy of having a competitive edge over competitors through a distinguished customer focus.

6. Conclusion and Strategic Recommendations

The analysis of Sainsbury’s departmental and business strategy determines that Sainsbury’s is still lagging in a highly competitive market. This stance is mainly set through the CostDifferentiation Advantage analysis, Internal and External framework, Competitive strategies, and Corporate plan of actions.

Sainsbury’s significantly racing towards attaining the maximum market share and being a part of this never-ending competition, they persistently need to up their strategies for them to lead the market. Apart from that, the following strategic recommendations can be provided for Sainsbury’s:

6.1 Strengthen Cost-Saving/Co-Creation Segment

Apart from the categorical product lines they have diversified themselves into for making the lives of consumers easier, they should focus more on the important ingredient in the entire strategy and marketing mix; customers, as pricing and product mix, are keenly watched, modified, and adjusted by all competitors to either maintain parity or achieve it. Co-creation is a concept that many of the brands are still assimilating in their corporate strategies, getting involved with customers and making the stores as per locational preferences resulting in diverting investments to productive results and saving costs in the long run. It is sustainable for Sainsbury’s to widen its business chain and release an innovative type of business activity like the electric household equipment category that can distinguish it from its competitors or further their alliance with Argos to provide customers with value and quality by liaising both stores to improve the convenience for customers.

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For the grocery industry, healthy stock turnover efficiency ensures that shelf freshness is maintained and reduces logistic costs. Large and widely spread grocery stores such as Sainsbury's have a harder time keeping stock turnover under control, but according to the chart (Appendix 12), it can be compared to competitors of similar size (Sainsbury's, Tesco, Morrison's market value as of 27/11/2020: 4.8b, 22.3b, 4.4b), (LSE, 2020). Sainsbury's inventory turnover is still not well controlled with the help of Blueyonder and is even on a downward trend year on year. This is because Sainsbury's executives misjudged the growth in demand from its customers from 2016 onwards and did not make the appropriate adjustments over the following four years, resulting in a backlog of goods. Sainsbury's should use big data to conduct customer demand research, make timely adjustments to its inventory and supply chain strategy, and improve efficiency to facilitate the implementation of its cost-saving strategy.

6.2 Improvising Digital Competencies

After the introduction of the Smartshop application in 2018, a lot of friction in consumers' minds was generated due to difficulty in accessing the nectar scheme. Using Smartshop as a “One-stop Application” involving shop-and-go feature with their tier-loyalty programme will help them with two ma motives-

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This will greatly reduce the pressure of payment using Nectar cards at the cash counter, thus reducing Sainsbury’s labour and alliance costs.

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Making their own market, staying established for so long in this industry Sainsbury’s has created a massive customer base, by introducin...