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Sainsburys Companys Contemporary Management Issues
Introduction
Sainsburys is a popular chain of supermarkets in the United Kingdom. It offers a wide range of products, including groceries, homeware, alcohol, kitchen appliances, clothing, and electrical appliances. Sainsburys shops range from small local convenience to large hypermarkets and superstores offering various types of products. J Sainsbury, which is the owner of Sainsburys supermarkets, is a public limited company, and its largest overall shareholder is Qatar Holdings LLC, with 21.99% of voting rights (Major shareholders 2018). Besides supermarkets, J Sainsbury PLC also owns Argos and Habitat chain stores, Nectar, and Sainsburys Bank. However, supermarkets remain the most prominent and recognized line of the companys business that largely contributes to its growth. Sainsburys competition in this market is significant because it comes from various sources. Large supermarket chains, such as TESCO and ASDA, as well as local convenience stores and minimarkets, all compete with Sainsburys for customers. Additionally, the food retail industry is influenced by various forces that create an environment that is subject to continuous change. In order to remain profitable and grow market share in this environment, Sainsburys must understand the key drivers of change affecting it and tailor its response to strategic goals and needs.
The present paper will aim to discuss the drivers of change evident in Sainsburys case based on PESTLE analysis and other related tools. The paper will also seek to explain the nature of change propelled by these factors and evaluate Sainsburys response to provide meaningful recommendations. Issues to be examined in the paper include various social, political, economic, and environmental factors, competition, and stakeholder needs. These issues are critical to strategic management because they impact the organizational functioning and strategic direction of the organization. Understanding the issues that play a critical role in Sainsburys case would enable the company to make better strategic decisions and engage in successful change, thus responding to competition and increasing its market share.
The terms and abbreviations used in the paper include basic business management terminology. However, some definitions may be provided to ensure clarity and support further discussion. PESTLE stands for political, economic, social, technological, legal, and political forces that may affect an organization (Kunc 2019). SWOT is an acronym used to identify strengths, weaknesses, opportunities, and threats in the context of a particular company (Ansoff et al. 2019). Another term that will be considered in the paper is globalization, which is used to denote the trend for increasing interconnectedness between firms, economies, and communities regardless of geographic barriers (Camillus, Bidanda & Mohan 2017).
The term sustainability is taken to mean a positive relationship between a business and the society or the environment. In other words, sustainability is achieved when companies earn profits while benefitting society and the environment (Stead & Stead 2017). Corporate social responsibility is a similar term used to identify a business model where a company contributes to the public good (Stead & Stead 2017). This includes donating profits, funding social or environmental projects, promoting diversity, and other activities. These terms will be used throughout the paper to support analysis, while any other minor terms will be introduced in their related context.
PESTLE Analysis
Political Factors
There are two important political factors that are important in Sainsburys organizational and market contexts. First of all, the political environment in the United Kingdom is somewhat unstable because of Brexit. According to Bloom et al. (2019), Brexit has created a climate of uncertainty for businesses in the United Kingdom due to its potentially harmful effects on UK-based companies. Indeed, there are many ways in which Brexit may impact Sainsburys and other supermarket chains in the United Kingdom. For example, it may cause an increase in taxes on imported goods or a change in product regulations (Bloom et al. 2019). Additionally, Brexit might affect the availability of the workforce in the country due to restrictions in migrant labor (Bloom et al. 2019). This could have a significant influence on Sainsburys because supermarkets often rely on cheap, low-skilled labor for their daily operations. The decreased availability of workers could lead to a rise in workforce costs, thus affecting profitability. In case the company decides to address new labor expenses by recruiting fewer employees than necessary, this could affect the level of service, causing customers to prefer other supermarket chains.
Another political factor that could have an effect on Sainsburys in the future is the relationship between the United Kingdom and Qatar. Since the largest shareholder of J Sainsbury PLC is Qatar Holdings LLC, which is wholly owned by the state of Qatar, the political relationship between the two countries may influence Sainsburys operations and profits. For instance, a regulatory change restricting foreign ownership could cause major organizational disruptions in Sainsburys.
Economic Factors
Globalization is among the fundamental economic forces that could affect the future of Sainsburys. Globalization is associated with the increased interconnectedness and interdependency of global economies. In the present case, the economic relationship between the United Kingdom and other countries may affect investment opportunities, product export, and import and currency levels. Changes in currency levels could also have a direct effect on Sainsburys because they impact profitability. Specifically, the decrease in GBP could cause a negative influence on Sainsburys by restricting profits and increasing expenses, including labor and product import. The current political uncertainty evident in the United Kingdom has already contributed to changes in GBP, weakening its position over the past two years since the outcomes of the Brexit referendum in 2016.
Social Factors
Social factors affecting Sainsburys are diverse and include a variety of trends that cause changes in customers needs and attitudes. First of all, the public today is more concerned with ethical conduct and corporate social responsibility than ever before. As explained by Camillus, Bidanda, and Mohan (2017), the most profitable organizations today are the ones that engage in creating shared value through connecting with customers and communities. This means that, with a variety of alternative products and brands to choose from, many customers found their buying decisions on the companys image. For Sainsburys, this creates a need to engage in corporate social responsibility practices and ensure ethical decision-making.
Secondly, because Sainsburys supermarkets serve such a large market, the company is also impacted by social change in British society. In particular, Sainsburys is required to respond to an array of customers needs to be able to attract customers from various generations. For example, older adults value convenience and low prices, whereas younger people are concerned with technological integration (The 2018 omnichannel retail report 2018). This may create challenges for the company as well as opportunities to increase the market share depending on the selected strategy.
Lastly, there are also social trends that affect the popularity of specific products or types of goods. For instance, widespread concerns about obesity and fitness gave rise to low-calorie products, organic products, and appliances for cooking healthier meals. Failure to respond to such social trends may cause Sainsburys to lose customers if they cannot find what they are looking for in Sainsburys supermarkets or convenience stores. From this perspective, social factors intensify the competition in the market and require Sainsburys to monitor peoples attitudes continuously.
Technological Factors
The influence of technological development is evident in all areas of contemporary business. The critical technological factor affecting Sainsburys performance is innovation. The term innovation is broad, but it is often used to mean technological advancements that create new opportunities for using technology, improve efficiency, or provide new data. In business, innovation involves applying modern technologies to respond to the customers needs. In todays world, most customers in developed countries use technology regularly. Being accustomed to modern gadgets, they also expect businesses to apply technology to enhance the shopping experience. Online shopping platforms and self-checkout machines are now used by most supermarket chains, including Sainsburys. When new technologies emerge, pioneering them in stores or online could draw new customers to Sainsburys, thus affecting performance.
Another significant influence of innovation is enhanced data-driven analytics. When customers use the Internet, the data about their preferences, likes, and dislikes can be collected by businesses and used in market research or for advertising. Social networking platforms, such as Facebook and Instagram, collect information about users interests through search history to offer tailored ads. Using technology for market analysis and advertising has a significant positive effect on business performance.
Legal Factors
The legal factors affecting Sainsburys are mostly comprised of rules and regulations that control how certain products are sold, advertised, imported, and taxed. The 2018 regulation introduced a new tax for companies that produce high-sugar drinks. While this does not affect Sainsburys supermarkets directly, the tax caused an increase in sugary drink prices (Birchall et al. 2018). This could affect the companys sales both positively and negatively depending on whether or not the increased price deters customers from buying sugary drinks. Another relevant regulation is the restriction of advertising of high fat, salt, or sugar (HFSS) food and drinks. According to the Advertising Association (2018), Existing UK rules mean that ads for HFSS products cannot be targeted at children in any media and are among the strictest in the world. Children are protected up to the age of 16 significantly higher than most countries, where rules apply only to under 12s (para. 4). This limits supermarkets ability to promote specific products to influence sales, thus affecting income from the sale of such products.
Environmental Factors
Today, the general public is more concerned about the environment than ever before, and thus businesses are expected to engage in sustainability efforts to maintain a positive image and fulfill their corporate social responsibility. There are three factors associated with this trend that affect Sainsburys performance the most. First of all, concerns associated with plastic waste restrict packaging options for supermarkets. For example, using paper bags or reusable bags instead of plastic bags and reducing plastic packaging for stored products is an essential part of many supermarkets sustainability promises.
Secondly, waste reduction is a prominent trend that companies seek to implement to reduce damage to the environment. This, in turn, affects the daily operations of supermarkets in the United Kingdom. According to Mintel (2017), food retail companies are now expected to reduce waste as part of every activity, including food waste. Zero waste supermarkets started opening in the United Kingdom in response to this trend, and became popular among consumers, thus intensifying the competition (Mintel 2017). For Sainsburys, this means that both implementing increased waste reduction and failing to do so would affect performance and customers interest in the company.
Finally, businesses are also expected to engage in activities for reducing the carbon footprint through decreasing emissions. Supermarkets are part of the distribution chain for food and other types of products in the United Kingdom, and that means that they contribute to carbon emissions by transporting goods to stores and customers. Failure to address the issue of emissions could impair Sainsburys sustainability profile and draw environmentally-conscious customers away, decreasing performance and market share.
SWOT Analysis
Strengths
As a long-time player in the food retail market, Sainsburys has many strengths that allow it to maintain a significant market share. The primary strength of Sainsburys is its established image that is trusted by many customers in the United Kingdom. As noted in the annual report, food sales have grown since 2017, first by 2% in 2017/2018 and then by 0.6% in 2018/2019 (J Sainsbury PLC 2019). This shows that the company benefits from a stable position in the market and uses quality and value to achieve consistent growth. Another principal strength is that Sainsbury has diversified distribution channels, including supermarkets, convenience stores, and online stores. This is a beneficial feature in the contemporary business environment because it improves the geographical reach of the company, allowing it to serve more customers. It also contributes to sales growth because people can choose Sainsburys over its competitors because of service convenience. In 2018/2019, the company experienced sales growth across all distribution channels, with 1%, 3.7%, and 6.9% for supermarkets, convenience stores, and online stores, respectively.
Besides image and organization, Sainsburys also benefits from a diverse product range. For supermarkets, offering a great variety of products reduces the chances that customers would need to go elsewhere to buy what they need, thus affecting sales. The diversified range of food products, as well as homeware, appliances, and clothing, allows Sainsburys to maintain its market share and remain among the leading supermarket chains in the United Kingdom.
Weaknesses
Despite the favorable position in the market, Sainsburys has some crucial weaknesses that could affect its future development. Firstly, Sainsburys market is limited to the United Kingdom, and the company does not have supermarkets in other countries. The high competition in the local food retail sector limits the possibilities for future growth. Secondly, the food retail industry has a relatively low-profit margin, which also affects long-term profitability and potential for its growth (Mintel 2017). Thirdly, Sainsburys market is limited by the focus on low prices, which drives high-income customers away. According to Mintel (2017), the value perception of Sainsburys products has decreased over the past few years, which affected its trust ratings: Sainsburys had a customer trust rating of 23% in 2017 compared to TESCOs 45%. This is a significant weakness for the company because it affects customers preferences. While customers with no other local options would probably still shop at Sainsburys supermarkets, customers with low trust levels who have opportunities to shop elsewhere would be drawn to competitors.
Opportunities
In the light of PESTLE analysis and the strengths and weaknesses explained above, Sainsburys has several opportunities for growth. Diversifying the range of products offering to include more high-quality, high-price products could help it to raise trust ratings and win over the more affluent market segments. Additionally, continued innovation in technology could help to achieve higher profits by increasing the volume of online and in-store sales. However, it is essential to tailor the experience to the needs of different customer demographics. Social change that occurred over the past decades increased the distinction between needs and preferences of different generations. While young people would easily navigate the new technologies offered by Sainsburys, older adults might find it unnecessary or confusing. Hence, to attract customers from all generations, Sainsburys would need to ensure that the technologies are simple to use and any customers who struggle with it can receive support at all times. It would also be beneficial for Sainsburys to consider geographical expansion to areas outside of the United Kingdom. While this could be a risky endeavor, it could also result in increased sales volume and profitability over time.
Threats
The most substantial threat for Sainsburys is competition, which is rigorous in the United Kingdom food retail sector. A complex and saturated competitive environment poses a direct threat to the company by limiting the possibility of market share growth and requiring consistent action in order not to lose customers. This threat can be targeted by using the opportunities discussed above and researching the market continues to respond to the newest social changes as fast as possible. Another threat comes from the limited geographical reach of Sainsburys. With the sole focus on the United Kingdom, the company might suffer from political, economic, and regulatory changes affecting the country. The only way for the company to avoid this threat would be to expand to other countries.
Michael Porters Five Forces
Michael Porters Five Forces is an analytic tool used to assess the competitive environment of a particular business. According to this tool, the competitive climate is determined by five factors: bargaining power of suppliers, bargaining power of buyers, the threat of new entrants, the threat of substitute products or services, and rivalry among existent players (Kunc 2019). In Sainsburys case, the competitive climate is threatening for several reasons. First of all, the threat of substitute products and services in the food retail industry is very high because there are several large supermarket chains providing similar or even identical products. The range of products offered in Sainsburys is similar to the one presented by its key competitors, including TESCO and Morrisons.
Secondly, the availability of substitutes also contributes to the bargaining power of buyers. This force is rather high in the supermarket industry because people can influence prices, quality, and services provided by the key market players (Kunc 2019). For instance, the high demand for online grocery shopping pushed for the introduction of this technology in most large supermarket chains. Because of these two forces, the rivalry between existing market players is significant. Sainsburys competes with other supermarket chains for customers continuously by introducing new product lines, creating promotional offers, and using new technologies. Retaining a competitive position is vital for the company to maintain its market share, but because other supermarket chains do the same, it is difficult to expand the market share further.
The remaining two forces from Porters model have a weak to moderate effect on Sainsburys competitive environment. The bargaining power of suppliers is rather low because products in the food industry are not unique and can be supplied by different companies. Additionally, many supermarket chains, including Sainsburys, have their own branded products, which reduces the reliance on external suppliers. The only suppliers that have significant power in the sector are large, multi-brand companies, including Nestle, Coca-Cola, and others. These suppliers have more bargaining power because they produce many products that customers are used to, including specific drinks, cereal, and sweets. The threat of new entrants in the food retail industry is mostly limited to smaller grocery stores (Mintel 2017). While they could affect the sales of chain supermarkets, it is unlikely that the influence will be significant.
Evaluation
Based on the analysis above, the primary drivers of change in Sainsburys case are social and environmental factors affecting the companys performance. On the one hand, with the great bargaining power of buyers and the high threat of substitute products, as well as with social changes discussed in PESTLE analysis, it is crucial for Sainsburys to respond to the needs of its diverse consumers and to their changing tastes to increase value (Camillus, Bidanda & Mohan 2017). The nature of change brought by this driver is multi-faceted due to the diversity of Sainsburys customers. Changes that come from the pressure of social factors concern the technologies used, products sold, prices and promotions offered and the overall customer service experience provided. By responding to the needs of diverse consumers successfully, Sainsburys could enhance its market share and achieve improved sales to improve its competitive position.
On the other hand, the environmental factors discussed as part of PESTLE analysis also play an essential role in promoting change in all areas of business. The food retail industry is no exception; with the need to focus on sustainability as part of its corporate social responsibility, Sainsburys is required to improve its operations continuously. Active engagement in sustainability efforts is vital for three distinctive reasons. Firstly, it is connected to the social change factor and the bargaining power of buyers because environmentally-conscious consumers usually choose businesses that have an active sustainability profile (Stead & Stead 2017). Secondly, sustainability programs ensure that the company satisfies legal requirements set by the state in terms of environmental footprint (Ansoff et al. 2019; Stead & Stead 2017). Lastly, sustainability is critical due to the intense competitive rivalry in the food retail industry. By setting high sustainability standards, Sainsburys could become the industry leader in sustainability, thus also promoting positive environmental change in other companies (Stead & Stead 2017).
The nature of change propelled by the environmental change driver is mostly operational. This involves the company reforming its daily operations in a way that reduces environmental input and waste. Nevertheless, changes in organizational culture, strategy, and supplier choice may be required as part of fulfilling the companys sustainability promise. For instance, increasing the reliance on environmentally-friendly suppliers as opposed to corporations that damage the environment and promoting recycling programs in the workplace are among the changes driven by the environmental change driver.
Sainsburys Response to Change Drivers
Over the past decade, Sainsburys has been responding to both social and environmental change drivers in an adequate way. With regards to the social change driver, the company has been making progress in diversifying its product range in response to consumers needs. For example, the recent annual report states that the company has made progress in increasing the number and quality of products in its vegetarian ranges, thus responding to the growing consumers concerns with health and the environment (J Sainsbury PLC 2019). Additionally, the implementation of an online store enabled the company to cater to the needs of younger consumers, as well as those who live a busy lifestyle (J Sainsbury PLC 2019).
To improve the shopping experience for younger market segments, the company has also introduced the SmartShop self-scan technology to allow for checkout-free shopping (J Sainsbury PLC 2019). All of these changes are based on the needs of customers in the market and their interest in specific products and services. Hence, it is evident that Sainsburys used strategic analysis and decision-making to support sales growth and respond to social change (Ansoff et al. 2019; Kunc 2019). Nevertheless, most of these changes are aimed at younger populations. With the growing share of older adults in the United Kingdom, the company should also focus on attracting customers from the baby boomer generation, who might struggle with technology and have different needs. This would help to add value for other customer segments, thus attracting more customers to Sainsburys (Camillus, Bidanda & Mohan 2017).
With regards to the environmental change driver, the company has been making progress comparable to that of other players in the industry. The current Sainsburys business model involves appraising suppliers for ethics and sustainability, as well as reducing emissions, water use, and waste through design and operations changes (J Sainsbury PLC 2019). The company has a well-developed sustainability plan with defined performance indicators that fit in with the United Nations sustainable development goals (J Sainsbury PLC 2019). Sainsburys also created forums and discussion groups focused on sustainable farming, behavioral change programs for employees, and educational events (J Sainsbury PLC 2019). All of these changes resulted from the pressure of the environmental change driver, and it can be said that the companys response is sufficient and exceeds the standards set by the industry (Stead & Stead 2017). Further improvements in this line could be achieved through environmental community outreach programs aimed at behavioral change, as well as by improving logistics and promoting eco-friendly products.
Recommendations
While Sainsburys response to both change drivers identified above is sufficient, the company could use other strategies to enhance its response over the next decade. With regards to the social change driver, the company should focus on creating value for older groups of customers (Camillus, Bidanda & Mohan 2017). While technological advancement is vital for positive change, some technologies may be confusing for the older generation, and thus the benefits offered by modern technology would not be available to specific customer segments. To enhance its response to the social change driver, Sainsbury should seek to create an accessible customer experience (Camillus, Bidanda & Mohan 2017). For example, creating devices that enable checkout-free in-store shopping and offering support to seniors using them would complement Sainsburys current response to social change. Improving the accessibility of the online store to provide for the needs of people with impaired vision and enhancing over-the-phone support are also some of the possible strategies.
Addressing the environmental change driver may also require new strategies in the future. Sainsburys has already implemented behavioral change programs in the workplace to encourage environmentally-friendly behaviors (J Sainsbury PLC 2019). Extending these programs into local communities would make a great addition to Sainsburys sustainability strategy (Camillus, Bidanda & Mohan 2017; Stead & Stead 2017). Additionally, it is recommended to improve the marketing of environmentally-friendly products and brands, as this could contribute to conscious decision-making among customers (Stead & Stead 2017). Lastly, focusing on logistics improvement could help to cut down carbon emissions and waste further, thus also contributing to Sainsburys response.
Conclusion
All in all, Sainsburys supermarkets operate in a highly competitive environment, which is subject to continuous change, and that creates pressure for ongoing improvement. The most important drivers of change in Sainsburys case are social and environmental changes. Social changes have a significant effect on consumers needs and requirements, whereas environmental changes prompt businesses to focus on sustainability. At the moment, the companys response to these change drivers is adequate, but it could be improved. Based on the results of the analysis, the present paper offered strategies and recommendations for future development that could help Sainsburys to improve its response to social and environmental change drivers, thus sustaining competition and achieving a larger market share.
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