Table of Contents
- Key Issues
- Theories Related
- PESTEL Analysis
- SWOT Analysis
Technology is altering the way work is organized today. It is transforming the necessity for what is known as the ‘schedule push’ and for the organization following the hierarchical style it entails, and as a result it is eliminating the type of authority that is traditionally applied to match reserves to operations, and consumer demand for services and supplies (Reep, n.d.).
The “Retail Industry Leaders Association” (RILA) is the business alliance for the entire globe’s major and most pioneering retail firms. The members of RILA consist of above around 200 product manufacturers, service suppliers, and retailers, which collectively contribute towards more than 1.5 trillion US dollars in yearly trade, a great number of American employment opportunities, and above 100,000 manufacturing facilities, distribution units abroad and domestically, and stores (Ernst and Young, 2013).
The UK grocery sector has been slowly growing, according to IGD-based research, and is projected to expand much further in the future (Varley and Rafiq, 2004). The total grocery market has shown an increase from 163.6bn Pounds in 2012 to 169.7bn Pounds in 2013 i.e. 3.7% increase from the previous year. The market has faced some major issues such as the financial crises, high rate of unemployment, tight and limited household budgets to name a few issues (McGoldrick and Davies, 1995). In spite of the prevailing issues, the UK market has been able to acquire a stable and reasonable growth rate (IGD.com, 2013). The given diagram explains the trend of the grocery sector of UK-
Source: IGD.com, 2013
IGD estimate that the grocery market of UK will be of £205.9bn value in 2018. There are about 92,796 grocery stores in the UK which are further divided into four sections, Convenience store; supermarkets, hypermarkets, and superstores; Traditional retails and online channels. The biggest retail grocery chain in the UK comprises of Tesco, Sainsbury, Morrison, and ASDA, accounts for 67.9% of the total grocery market of UK (Li, 2008, p.2).
The theme of our present analysis is to examine the effects on the retail industry as a whole of one or more larger environmental influences, and hence Sainsbury’s was chosen for the reason as it holds the 30th spot in the Kantar Retail Top 50 Supermarket Rankings global retail industry ranking (Kantar Retail, 2013). In 1869, Sainsbury’s was founded and currently operates more than 1106 grocery stores and supermarkets that provide almost 157,000 people with job opportunities. The customer is considered to be the heart of the organization and the firm continuously invests money for improving the experience of the channel partners and employees to offer the customer with the best “shopping experience” (J Sainsbury PLC, 2013).
Although Tesco has problems in almost every aspect of its operations, Sainsbury’s greatest rival announced an advanced step towards revenue growth by “quality and service” (Gottdiener, 1998). Through its competitors such Asda and Tesco, Sainsbury has successfully traded punches. Justin King, the company’s chief executive, claimed that Sainsbury’s popularity was largely embedded in its exceptional level of service and excellent self-brand goods. The organisation has actively objected against Tesco’s ‘Price Pledge’ ad scheme. According to Sainsbury, since it proves to be a mistake to find out that the own-label labels of the business have original criteria or outstanding ethical standards, the programme receives clients. The assertion of Sainsbury was backed by “ethical trading accreditation bodies” including the Freedom Food proposal of the RSPCA, the Aquatic Stewardship Council and the Fair-trade Fair-trade Council (Butler and Rankin, 2013). Basically, most shoppers entering supermarkets tend to go for discount stores such as Lidl and Aldi, according to Justin King, and these stores have been seeing impressive growth in recent years. However, Lidl and Aldi struggled to beat the superior service offered by Sainsbury’s, despite selling products at reduced rates. The retailer’s in-house products such as “By Sainsbury’s” and “Taste the Difference” have grown at a pace that is double the rate of foreign brands, as consumers still find opportunities to save money. Even the non-food department illustrates the company’s steady growth. Around two 2/3rd of the UK people are not even within a fifteen-minute drive of the entire non-food coupons of the business and there is a maximum non-food range of just 1 in 5 of the supermarkets. Therefore, future store expansion in this domain proves to be a great opportunity for growth. Sales of clothing often reflect a steady and growing trend at twice the pace of the food department. At the multiple convenience stores, sales growth rose from 15 percent to 20 percent, which Justin King attributed to the hot summer season. While the revenue growth online slithered down from 20 percent to 15 percent, King indicated that buyers opted to come out in the sunshine instead of waiting for orders at home. The current year, though, reveals that pay hikes are just 1% and the pace of inflation is almost 3%, which reduces the consumer’s budget.
The impact of technological advancement and globalization of the modern era has, in turn, fuelled the amount of rivalry among the firms and the process of innovation is being continuously adapted by every firm in order to draw the customers. As a result, it has become the key objective of every business to satisfy its customers and supply them with the demanded products and services. In case a business fails to provide the necessary goods and services to its customers, the customer base shifts to the substitute market thus making the business lose its market share which proves to be a devastating outcome for the firm. Therefore each and every firm tries hard to retain their existing customer base because it is believed that a satisfied customer is equal to an advertisement for the company and retaining the existing customer is more profitable than replacing them with the new ones. Even though they are searching for ethical and socially beneficial alternatives, customer support, product consistency, and discounts are major motivators for shoppers. It is, however, a difficult task to understand what exactly satisfies a customer (Megicks and et. Al, 2008).
The potential behavior of the shoppers can be estimated by evaluating their present consumption and buying structures. The study of the behavior of consumers not only takes into account the internal parameters but also the factors which are external to the firm which is accountable for affecting the decision of the shopper for buying goods and services. These external factors include the political, social, environmental, technological, legal and economic conditions of the nation. The buying behavior of the consumer puts emphasis on every action and factor that takes place previous to, during and following the purchase of a certain product or availing some service. Thus, it not only involves the buyer and seller in the process but also puts stress on other elements which direct and controls the decision-making procedure and behavior (Liu and McGoldrick, 1995).
The implications from the study can be presented in the form of PESTEL and SWOT analysis of the firm.
Political: Recently Justin King, the chief executive of the firm started pressurizing the Government to relieve the load of tax on the “high street” since the store experienced a decelerate in quarterly sales turnover. Justin King, who used to be the business adviser to David Cameron, stated that for resolving the absence of a “level playing field” on levy comprised of a US-pattern tax on web transactions or a “shake-up of the business rates system” (Neville, 2013).
Economical: The growing inflation rate and the poor salary hike is affecting the sales of the firm in an adverse way. Moreover, the rising level of food prices around the world would consequently make the prices of the goods to rise at Sainsbury’s. Further due to the growing fuel prices, the home delivery services of the store are subject to experience a sudden boost. Moreover, the growing Gas prices are likely to hit the “Sainsbury’s Energy customers” as the firm is in affiliation with British Gas (Winch, 2013).
Social: Changes in the social trend impact heavily on the business. With UK economic condition, the population of UK have changed their spending habits and prefer saving for future, hence reducing the purchase pattern of the population. Though the economy has proved to be stable in the current financial, still the UK consumers tend to save and not spend unnecessarily. Another social factor is emphasis made by the government to promote healthy eating particularly due to an increased level of obesity with the UK population. This has inclined a shift in the eating habits of the consumers and this provides an opportunity for Sainsbury to introduce healthy food. The firm dedicatedly follows its CSR and regarding it Luke Jensen, Sainsbury’s group development director stated that “In our mind, [CSR] is something that is built in. It is something you have to do day in and day out. It is about culture” (Russell, 2013).
Technological: A new technology creates new products and new processes are in turn created by the modern technology. The internet seems to the key point for the growth of any company in the western countries. Sainsbury can use the e-retail to its advantage like its competitors Tesco which utilize its own online delivery model. The company can adopt technology like RFID which Wal-Mart uses for an effective and efficient supply chain. The e-retail market is currently growing at 16% annual in spite of the economic downturn (IMRG, n.d).At present, the firm is working along with some researchers of Teesside University towards developing a new £1M research project aiming at finding efficient means of improving the efficiency in manufacturing snacks and crisps while bringing down the oil usage to the minimum level possible. The University is required to present optimum proficiency in the domains of chemistry, food science, and technology for managing and controlling the use of oil in the production process (Stones, 2013).
Environmental: The food and grocery industry has achieved a zero growth in packaging. The UK food and grocery is working to reduce the impact on the environment by cutting HGV road miles, reducing wastes, and by cutting the green house gas emission. In the same way, Sainsbury manages the environment impact through their climate change strategy. To undertake the strategy the company has divided the business into three sections, product, customer and the company’s operations. Sainsbury aims to reduce the impact on the environment by introducing programs relating to the environmental activity between the current fiscal and 2020 and aims in becoming the greenest grocer of UK. The organization is working hard to introduce the world’s 1st ever, naturally frozen truck for storing and transporting food products with the aim of cutting down the company’s “carbon footprint” for almost 10000 tons annually (Business Green, n.d.).
Legal: Sainsbury’s is constantly pursuing a legal battle against Tesco’s “Price Promise” mode of advertising, which maintains to contrast the cost of products at competitor stores, even own-brand products.
Strength: The Company offers about 30,000+ products and also offers a wide range of non-food products and services. The internet based home delivery service also adds to the advantage of the company (J Sainsbury PLC, 2013).
Weakness: Sainsbury has the least range of styles of supermarkets, relative to most supermarket shopping chains. Tesco has six distinct retail designs that have led significantly to Tesco’s growth. Moreover rising food prices all around the world proves to be a concern for the firm and also the hike in Gas prices is likely to affect the consumers as the product prices might get increased.
Opportunities: A huge opportunity lies with Sainsbury to grow as the UK retail market is growing at a steady rate, it provides ample opportunity for the company to utilize its resources and capabilities and grow and achieve a decent market share.
Threat: Due to an increase in the tax rate from 26.1% for the year 2011-12 to 23.7% for the year 2012-13, the firm is thinking about the expansion plan throughout to provide services related to primary care in its outlets, with an additional 7 in-store General Physician surgeries that are still to be initiated across the nation this year (Davies, 2013).
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