Strategic management at Sainsbury’s | Free essay | Management essays

Introduction

The word “strategy” is often over-used in a fuzzy manner. Therefore this simple and
straight-forward definition of strategy given by William E Rothschild, the business
leader and an ex-General Electric veteran is one of the best available. He defines
strategy as “What do you want to achieve or avoid? The answers to this question are
objectives. How will you go about achieving your desired results? The answer to this
you can call strategy.” The highlight of this definition is that it clearly distinguishes
strategy from “objectives.”

This assignment examines strategic management at Sainsbury’s, during various
booms and busts from the days of its launch till date. The analysis is done within the
various conceptual frameworks of strategic management in general and Michael
Porter’s five forces model, in particular.

Strategic Management

An articulate, well-laid out and well-executed strategy is the cornerstone of long term
prosperity of any business. Strategy operates at various levels, starting with Business
or Corporate strategy. Since the ultimate goal of a business is to gain leadership
position in one or the other form, business strategy shapes marketing strategy,
competitive strategy and growth strategy.

Corporate Strategy

This is an organisation wide strategy that directs and controls the composition of all
business activity. It starts with a clear and quantified mission statement. This area is a
preserve of top management. Decisions are taken on:

• How resources will be allocated across the organisation
• Portfolio of activities for the firm
• Clear definition of the objectives

One of the key ingredients of good strategic management is organisational leadership
and its ability to clarify strategic intent. Driven by vision, it is “an articulation of a
simple criterion or characterisation of what a company must become to establish and
sustain global leadership.” (Source: Pearce et al pp 340).

Competitive Strategy

In an ideal situation of a monopoly, competitive strategy has no significance. But in
reality this is never the case. In near perfect competition, leadership position comes to
a business only by gaining sustainable advantage over its competititors. At times this
also determines the growth paths that a business should take. For instance, evaluating
a move away from core competence into a completely unrelated business, or initiating
take-over of another business that can offer synergies.

The five forces model

Michael E Porter proposed the five forces model in 1980 in his book “Competitive
Strategy: Techniques for Analyzing Industries and Competitors.” In this widely
respected and accepted framework he suggests that there are five generic forces that
act upon a business irrespective of what industry it operates in. These forces are:

• Competitive rivalry within the industry between existing businesses: The
  significance of this force in a sector such as the UK grocery retail sector, with
  large number of players, is the erosion of loyalty because of perceived
  commoditisation.
• Threat of new entrants: If the barriers to entry are low because of low capital
  investment or lack of regulation, it can create further pressure with price cutting.
• Bargaining power of suppliers: Leads to lack of control over the supply chain
• Bargaining power of customers: Erodes loyalty and causes switching
• Availability of substitutes: Once again erodes customer loyalty and causes
  switching. This is a real pressure on UK’s retail sector.

To counter these forces and gain competitive advantage a firm can adopt either or a
combination of two business strategies:

• Comparative advantage / cost leadership: This emerges from economies of
  scale. It is a firm’s ability to source and produce at cost which is lower than its
  competitors and therefore earn higher margins. It does not necessarily mean
  offering lower price in the marketplace.
• Differential advantage / differentiation: Is a firm’s ability to create a unique
  perception about itself vis-à-vis its competitors in the marketplace. It allows a
  business to cultivate loyal segments of customers.

Sainsbury’s Background

Founded and launched in 1869, J Sainsbury’s PLC has as rich a history as modern
London. John James and Mary Ann Sainsbury launched their first store named
Sainsbury’s at Drury Lane and quickly expanded to a chain of four shops by 1882.

“Throughout company’s history, the Sainsbury brand has been synonymous with
good-quality, well-presented products, with 50 and 60 per cent of the range being
sold under the various versions of Sainsbury’s brand.” (Source: Varley). An average
Sainsbury’s supermarket today stocks approximately 30,000 products – 50% of which
are its own label. The company not only wants to deliver high quality products but
also wants to be seen as doing this by its customer. (Source: Thompson et al pp 192).

The mission of revival: In the last decade, the company has lost its leadership
position to Tesco and ASDA.. Currently it has between 16-17% market share, and is
placed at third position. In 2004, there was a change at the top level. In 2005, its new
chief executive clarified the company’s strategic intent by launching an organisation
wide revival programme “Making Sainsbury’s Great Again” and announced a mission
of increasing sales by £2.5bn by the end of 2007-08.

As a result of this turnaround program, at the end of this financial year, Sainsbury’s
“has reported sales growth ahead of expectations.” (Source: BBC New Website)

Competitive strategy: If history of successful businesses is analysed, it will clearly
emerge that winners are in the top slots because of the risks they have take.
Businesses hungry for long-term success identify gaps and problem areas and attempt
to provide solutions to their customers. Leaders at the helm do this with a
combination of instinct backed by objective analysis of emerging trends. This is
precisely what Sainsbury’s did in an extremely tough economic and social
environment during and after the World War II when external forces were threatening
its existence. In a pioneering move in the UK market, the grocery chain re-engineered
its store operations by adopting the American format of food-retailing. Its first “selfservice”
store launched in 1950 immediately after the World War II, when food and
other resources required for subsistence were scarce, became a success because it
solved a major problem faced by customers – it busted shopping queues. (Source:
Sainsbury’s website). Such moves are evident through out its existence and its march
towards becoming one of the best known retailers in the history of British business.

Sainsbury’s today: A move towards consolidation and growth

The company plans to focus on three of its core areas: Sainsbury’s Supermarkets,
Sainsbury’s Online and Sainbury’s Bank

Steps taken since 2004 in the retailing business:

• Price reduction across a number of products.
• Improving availability.
• Introduction of over 3000 new items.
• Introduction of nutritional labelling branded “Wheel of health” on over 1500
  products.
• Introduction of “Try cards” under the slogan ‘Try Something New Today’ built on
  healthy eating plank. The initiative aims to add value to the food shopping habits
  and changing food consumption habits. Its success measured by “over 7 million
  ‘Try’ cards picked up in stores.”
• Engaging its 3500 smaller scale suppliers by launching a campaign “Supply
  Something.” The initiative is aimed at making local supply chain robust.
• Increasing non-food product categories especially to generate a minimum of
  £700m sales.
• Initiating community participation programs such as “Active Kids campaign”
  involving donations of equipment to schools.
• Attempting to become a responsible corporate citizen by setting targets of
  reducing carbon emissions and introducing re-cycling.

The company has a sourcing office in Hong Kong “Sainsbury’s serves 16 million
customers each week in 455 supermarkets and 301 convenience stores across the
country. The company employs 148,000 colleagues commited to delivering ‘Great
Food at Fair Prices’.” maintains the company’s official website.

All the above activities are aimed towards gaining either diffrential or cost leadership
or a combination of both.

The future

There is an increase in sales in the grocery business over the last financial year
amounting to Pounds 324 million – a growth of 458.6% over 2006. However financial
services that accounts for just 1.7% of the total sales has seen a fall of 11.8% over
2006. The organisation states one of it values as “Getting better Every Day.”

In the current tight economic scenario, Shareholders are expecting most of the
retailers to use their real estate assets for generating additional liquidity. But in a
move completely reverse of the expectation, Sainsbury’s has tied-up with their lessor
British Land.

“Sainsbury’s also announced it was teaming up with British Land to create a £1.2bn
joint venture to run 39 superstores across the UK. The supermarket says it will invest
£273m into the venture, in which it will have a 50% stake. The stores are currently
owned by British Land and leased to Sainsbury for 20 years.” (Source: BBC News
Website).

Land is the fundamental element in a large scale retail business and store location,
store design and merchandise are all important critical success factors. It can be safely
concluded that this recent collaborative move by Sainsbury’s is a deliberate long term.
By investing in developing its stores, it can further hope to get a differential
advantage over its competitors.