A Competitive and Strategic Analysis With Core Focus on Tesco and Sainsbury

UK Retail Food SectorA Competitive and Strategic Analysis with Core Focus on Tesco and Sainsbury 2011-2012 Dissertation by: JIGAR .C.DHABALIA 1006497 Contents Preface ……………………………………………………......……. 4 Acknowledgement ……………………………………..………... 5 1. Research Methodology 1.1 Research Objectives …….………………..………………….… 1.3 Research Methodology ………..…………………………….... 6 1.2 Research Design ………...…………………………………….… 6 7 2. Literature Review……………………………………………………. 8 3. Introduction to Retail Food Industry 3.1 Introduction to Retail Food Industry in UK………….………… 3.3 Number and Sectors of grocery stores in UK ……………… . 10 3.2 Size of UK grocery market ………………………………….…… 11 12 4. Competitive Analysis of Retail Food Industry 4.1Competitive Analysis of Retail Food Sector in UK ………….. 14 4.2 Analytical tools for competitive analysis ………………….. 23 4.2.1. PESTEL Analysis …………………………….…….. 24 4.2.2. Porters five Force Analysis …..……………..….. 26 4.2.3. SWOT Analysis ………………........………….….. 4.3Assessment of top two players on the basis of no of stores 4.3.1. Tesco ……….....………………………….………. 4.3.1.1. PESTEL Analysis ………………………… 4.3.1.2. Porters five Force Analysis …………… 28 30 31 32 39 4.3.1.3. SWOT Analysis …………….……………. 41 2|Page 4.3.2. Sainsbury ….…….....………...…………….…….. 46 4.3.2.1. PESTEL Analysis ……….………………… 47 4.3.2.2. Porters five Force Analysis …………… 51 4.3.2.3. SWOT Analysis ………………… .………. 54 5. Strategic Analysis of Retail Food Industry 5.1Strategic Analysis of Tesco and Sainsbury…………………… 5.1.1. Tesco ……….....………………………….………. 56 56 5.1.2. Sainsbury ….…….....………...…………….…….. 58 5.2Evaluation and Recommendations…………………………… 60 6. Conclusion…………………………………………………………. 62 References ……………………………………………………..…... 64 Books Referred …………………………………………………….. Web Resources ……………………………………………………. 66 67 3|Page . The objective behind preparing this Dissertation is to relate the theoretical concepts taught in classroom to their practical application.. One of the greatest Leaders was Franklin Roosevelt. which may please be excused. introspection and experience..... He was blind.. My work in this project is. therefore. 4|Page .. it may have several holes and emptiness. the same flute can produce magical melodies.. a humble attempt towards this end. In spite of my best efforts there may be errors of omissions and commissions. He served from a wheel chair... He was deaf.” Similarly.. Some of the best poetry was written by Milton. education nurtures talent through learning and experiencing that is personally meaningful to each individual.Preface “Some of the best music was composed by Beethoven. “Life is like a flute. Further. My practical study is a matter of application. But if we work on it. I had prepared a Dissertation. to make the best of my academics from Masters of Management and as a part of my course curriculum..” It is up to us how we turn our SCARS into STARS!!!!” With the same note. is an effort to thank all such people who contributed to my project in one way or the other. it might be the time for them to leave. So one should never miss a chance to say. NAME: Jigar Dhabalia DATE: 2/9/2011 SIGNATURE: 5|Page ... I am heartily grateful to respected director Adina Luila for providing a wonderful. I would also like to thank my parents for their silent extensive support provided during preparation of this project.. whose direction. “By the time we realize the value of people around us. acknowledgement presented here. made me through hardearned success.. THANK YOU!!” Hence. I would like to thank my internal guide Prof. Also. Thank you for being a True Guide.. positive value additive criticism and encouraging remarks. to staff members of librarian for long hours support in library and last but not the least... First and foremost... My extended appreciation.Acknowledgement It is truly said. administrative staff for their backend everlasting support. challenging and learning environment in Management as I would have never got a chance to face and stand by the competition and get prepared for it. we would like to thank almighty for blessing me with competitive senses a platform to spruce myself. David Logan. 6|Page . Research Design and the Research Methodology. Porters five force Analysis and SWOT Analysis. corporate level strategies and international strategies and strategy development.2 Research Design Research design This project includes the descriptive and exploratory research design Descriptive: As it is a form of conclusive research that aims to describe various strategies followed by Tesco and Sainsbury. Secondary objectives  To conduct competitive analysis through PESTEL Analysis.1 Research Objectives Primary Objective To study UK retail food sector in brief and conduct strategic and competitive analysis with special reference to top two retail supermarkets namely Tesco and Sainsbury. analyzing the study the different areas where the bank faces credit risk and to find the area where they faces credit risk the highest 1.  To conduct strategic analysis of retail food sector by studying Business unit level strategies. 1.Chapter 1: Research Methodology This chapter includes the Research objectives. Exploratory: As it explores various new dimensions in various aspects through tools like PESTEL Analysis, porter’s five forces and SWOT Analysis. 1.3 Research Methodology Data Sources Secondary data: Secondary data was collected from various magazines, internet, journals and the thesis carried out by professionals. Sampling plan 1. Target Population: Top two retail hypermarkets namely Tesco and Sainsbury. 2. Sample Size: The study is based on the data collected for two companies namely Tesco and Sainsbury. 3. Sampling Method: The sampling method used here is stratified sampling method as the companies are selected as per the number of stores. Tesco and Sainsbury are the top two companies having the highest number of stores as per research by “BBC Panorama special programme called Supermarkets: What price cheap food?” 4. Elements: supermarkets. 5. Instrument of data collection: Websites and Journals 6. Analytical tool: Graphs like pie charts, & tables have been used to analyze & interpret the data when necessary. 7|Page Chapter 2: Literature Review This dissertation is divided into five chapters starting from Research methodology. This chapter mainly focuses on the research objectives, research design and research methodology used in the Project. The chapter Introduction to Retail food Industry gives a brief overview of UK retail Food Industry. The total revenue of UK food retail industry was approximately $186.1 billion in 2009, with a compound annual growth rate (CAGR) of 4.2% for the period of year 2005-2009. It is expected to slow down, with projected CAGR of approx 3.4% for the five-year time duration ranging from 2009-2014. This will drive the industry to a value of $219.4 billion by the end of 2014. (Data Monitor- June 2010) 1 .This chapter also focuses on the size of UK Grocery market, number of Grocery stores and also shows how big each sector is on the basis of the research conducted by IGD research in the year 2010. The chapter Competitive analysis of Retail food Sector focuses on the three major components which can be derived from PESTEL Analysis, Porter five forces Analysis and SWOT Analysis. These major components are drivers for change, sector structure and internal competencies and characteristics as derived from competitive analysis of Retail sector in UK2. It also focuses on the competitive analysis of Tesco and Sainsbury using PESTEL Analysis, Porter five forces Analysis and SWOT Analysis. 1 Food Retail Industry Profile: United Kingdom, June 2010, p1, 35p, [online] Business Source Premier [Accessed August 26th, 2011] 2 Competitive analysis of the Retail sector in UK (2003), prepared by Professors Steve Burt and Spark and submitted to Department of trade and Industry retrieved from Leigh :http://www.bis.gov.uk/files/file11029.pdf 8|Page The chapter Strategic analysis of Retail food sector focuses on the strategies of Tesco and Sainsbury. These strategies are analyzed in three parts namely Businesslevel Strategy, Corporate-Level and international Strategy and strategy Development. The dissertation ends with the conclusion that the UK food retail industry is distinguished by an immense high competition and low-price strategies. Within the highly turbulent retail segment, where companies are required to pursue both cost leadership and differentiation strategies, Tesco still maintains to hold its leadership position. While talking about Sainsbury, its performance (in terms of both image and profit) has improved tremendously. However, it is still not insulated to many outside risks like recession and rising material costs as highlighted in PESTEL analysis. 9|Page Chapter 3: Introduction to Retail Food Industry This chapter gives us the highlights about the retail food Industry. it had a total revenue of approximately $186.2% for the period ranging from 2005-2009. hypermarkets.4% for the five year period 2009-2014. they generated revenues of $39.2 billion in the year 2009. supermarkets and discounters accounting for approximately 60% of all sales.1 billion. It focuses on an overview to food retail industry. 10 | P a g e .1% respectively to reach respective values of $224. It is forecasted that the performance of the UK food retail industry is going to decelerate.6 billion and $234. with an anticipated CAGR of 3. The compound annual growth rate (CAGR) was 4.3% of the industry’s overall value. number of grocery stores in UK and how big each sector is.9% and 2.1 billion in the year 2009. During same time frame the CAGRs for French and German were 2. which equals to 61. 3. Discussing about the facts and figures of UK food retail industry. the size of UK Grocery Market. Most important sector of UK Food Retail industry i. This is expected to remain steady throughout the forecast period. supermarkets and Discounters proved to be the most rewarding sector for UK in the year. The retail food market in UK consists of hypermarkets. equivalent to 21.8 billion in 2009.1 Introduction to Food Retail Industry in UK Food retail industry lost pace in 2009 to moderate growth levels.1% of the industries aggregate revenues. While comparing them with the convenience stores and gas stations. accounting for total revenues of $114.e. This deceleration will drive the industry to the value of $219. it accounted for 53p in every £1 of retail spending. This is an increase of around 3. UK Grocery Market Performance: IGD Research 2010 3 Food Retail in UK (2010. While the German and French industries are forecasted to be accelerated with CAGR’s of 2.1 % over the year 2009. 21p of every £1 spent in food and grocery is spent in convenience stores.com 11 | P a g e .datamonitor.2 Size of UK Grocery Market The worth of UK grocery market was £150. While looking at food and grocery expenditure.8bn for the year 2010. (Data MonitorJune 2010)3 3. during the same period of time to reach the respective values of $265 billion and $ 260 billion in the year 2014.4 billion by the end of year 2014. June) retrieved from www.5 % and 3% respectively. 3 Number and Sectors of Grocery Stores in UK The number of grocery stores in UK is 91. traditional retail. UK Grocery Retailing .3. Each of these are defined as follows. supermarket and superstores and the online channel. hypermarkets. These grocery stores can be divided into four sectors further namely convenience stores.Store Numbers & Sector Value 12 | P a g e .509. Non-food items are also sold. (e. 13 | P a g e . 4.g. Co-operative Group). 2. For example: grocers. ft.000 sq. Hypermarket. Londis SPAR. These stores are open for long hours and they engage themselves in selling products from at least 8 different grocery categories. Convenience stores: Convenience stores are the stores with the sales area of less than 3.1. ft. and supermarkets are the ones which have a sales area of 3000-25000 sq. Online channel: This sector includes selling with the help of Internet. Superstores are bit smaller and have sales area above 25.000 sq ft. Tesco. Sainsbury etc. ft. supermarkets & superstores: Hypermarket are the ones whose size is over 60. news agent. 3. ft. Traditional retail: Traditional Retail stores are the stores with the Sales area of less than 3. All of these engage themselves in selling mainly grocery items. off-licenses.000 sq.000 sq. and some forecourts. For example: ASDA. 1 Competitive Analysis of Retail Food Sector This chapter focuses on the three major components which can be derived from PESTEL Analysis. polarized. vertical as well as horizontal. It also focuses on the competitive analysis of Tesco and Sainsbury using PESTEL Analysis. The retail sector can be recapitulated as innovative. Porter five forces Analysis and SWOT Analysis. and will have impacted on.Chapter 4: Competitive Analysis of Retail Food Sector 4. product and brand levels. the sector structure. The major effect can be summed up as concentration. sector structure and internal competencies and characteristics.e. Innovation too is very important which has occurred at operations. Porter five forces Analysis and SWOT Analysis. the UK market is open. These drivers for change will impact. It effects the environment within which retailing operates. The major subject matter of retailing is the subject matter of drivers of change. 14 | P a g e . as it allows the overseas retailers for easy entry and thereby increasing competition. price and cost pressures and complication. Polarization in the sector improves as the biggest companies continue to grow in scale as they operate in larger range. The sector is expanding from both the dimensions i. expanding. These major components are drivers for change. Finally. polarized & open. as the retailers engages themselves to take on more activities and develop more broader strategies. Internal characteristics and competencies within retailing: requires recognition of core operating competencies in order to gain success within retailing. Thus these are the major three aspects of competitive analysis which we will look at in the following section. 3. data and reach. 15 | P a g e . This sort of analysis will help to have an accurate view of the retail activity and competitiveness. 1. 2. Drivers for Change The analysis starts with an assessment of the environment within which a business operates. They did this in terms of their own processes. Structural characteristics of the retail sector: This allows analysis of the organization in terms of ownership. competitive structure and scope of retail sector – mapping the shape and resource base of the sector. This report focuses on using the framework considering the major drivers for change. Identifying and assessing the major drivers for change which influences the retail sector : Identifying and assessing the major drivers for change which influences the retail sector includes various factors which are external to individual businesses within the sector. But these factors help to shape the broad competitive environment within which retailers operate. The Retailers can now easily manage various aspects of their businesses and developing their approaches practices and systems.The processes by which retailing is done and all the activities are undertaken are also affected by drivers for change. outsourced or partnered activities and by taking advantage of their scale. 1. ii. Moreover. The retail food industry will have a limited impact of recessionary pressure as food is an essential product. i. The further outof-town development will be restricted by the Planning policy. the Cost structures and customer use will be impacted by the Transport policy (e. We will have a look how various structure and trends impact the change. Economic Structure and Trends: Economic structure and trends is also an important driver which also affects the food retail industry. Cost structure will also impacted by business related tax increase. the policies of Government regeneration and inclusion includes need for food retailing (big stores. cost structure will also be influenced by minimum wages. the consumers who 16 | P a g e .g. especially for smaller operators. the policy of Competition has and will continue to look at competitive structure and pricing . Pricing structures will be affected by possible introduction of VAT on food. local food). potential car park charging).The Change within each of these interconnected drivers contributes to the overall broad environment in which retailing operates. Thus these are the major political structure and trends which acts as drivers of change for food retail industry. Political Trends and Structure: This is an important driver for change for the retail segment. convenience meals steam cuisine etc. 17 | P a g e . farmers markets etc. stimulates the growth of farm assured products. v. yet at same time cooking programmes stimulate demand for particular products .Technology infrastructure and application high within the sector . Service expectations have risen and must be met . organic ranges. Socio-Cultural and Lifestyle Aspirations: The major socio cultural and lifestyle aspirations drivers are Changing time budgets influence when (and where) consumers shop and stimulate “convenience” product ranges and services . the consumers who have Time constraint uses home delivery internet suppliers. Store innovation quite high in terms of product display etc. Core cooking skills diminishing. stimulating readymade meal demand. Product and Process Innovation: Drivers related to product and process innovation includes Packaging and presentation innovation which helps in stimulating sales . iii.Widening of travel horizons creates demand for nontraditional food products and food styles .are Income constrained. iv.g. Innovation in product use is high e. seeks out low priced/good value food options rather than the superior products. Use of technology in supply chain increases reach of product sourcing . . Thus these are the important drivers which have impact on food retail industry. Demographic Structures and Trends The major demographic structure and trends relates to Changing size of family and household unit influences products purchased. pack size and shopping behavior. Health related issues . Size and Scope One of the major considerations is that the Market size is approximately £93-97 billion which shows steady low digit growth which is less prone to peaks and troughs as compared to most other sectors. (reinforced by EU legislation) and Energy efficiency is sought in larger stores 2. the large stores growth also has been driven. This adds to competitive investigation through an understanding of the implications for organizations arising from problems surrounding scale. 18 | P a g e . Major considerations are: i. scope. Sector Structure and Control The structural characteristics of the retail sector moderates the influences of the external environmental drivers and the ability for retail organizations to react to the opportunities and threats created by these changes.vi. the organization of businesses and resources. Due to sales of high value product and continued product innovation and product development the natural growth in the market is stimulated. moreover with the extension in product range into non-food ranges and core food extension. Environmental Changes and Trends The environmental drivers of changes and trends are the awareness of waste disposal is high. iii. 19 | P a g e . in-town markets. Moreover although issues are emerging. Now a day’s most of the sales is done through large units typically the grocery based superstore. Tesco appears the most fully committed and fully resourced company as compare to other related companies. With the changing world demographics and scenarios. on-line experimentation is increasing. Moreover International involvement is more likely. Competitive Structure. Tesco is the most dominant player.ii. Also most of the chains are now developing range of targeted shop formats in order to maintain growth and suit local environments. Co-op and Somerfield on neighborhood store/convenience market). growth of temporary farmers markets provides specialist niche and allows direct to customer sales. Rather than competing in the superstore market most of the Middle-sized tier of chains focuses on particular formats (e. Sainsbury. and increasing competition. Tesco. Its share in grocery market is approximately 25% and food market is approximately 20%. and hypermarkets) . Major Player’s consolidation at National level took place during the time duration of 1980s and 1990s.g. Among the big four i. further national consolidation is possible but format fit will establish viability and it may attract monopoly consideration unless a chain is broken up. Organizational Structure and Competition The food retail sector is dominated by “big four” with 68% of grocery market which is around 55% of food market. (Small towns. ASDA and Morrison.e. It focuses on limited line discount format and cash and carry or wholesale club format. Netto and Lidl dominates the limited line discount segment. The potential for good merchandising. Londis and Mace. The arrival of Wal-Mart focused attention on the price structures and reinforced move into non-food ranges as well. Non UK retailers like Aldi. International Opportunities and Threats International arrivals major focus is format driven.Although most firms have regional dominance they are now extending their operations from old regional locations to national levels (except Waitrose). Also the British food retailing is found quite to be stereotyped and ‘boring’ in its presentational skills. But hyped “Devastation” of the sector is yet to take place. the companies are moving outside UK at a very slow pace. traditional true independents are decelerating just as the specialist trades (Butcher. Looking at the examples of Spar. the independent sector is now more getting organized via voluntary chains and buying groups. Fishmonger). iv. 20 | P a g e . Unless strong local customer franchise is produced. local sourcing and ‘slow food’ is fairly high as response to sameness. It does not include the main line superstores and supermarkets. Tesco has developed various international business strategies and is moving towards international business in the emerging markets but the future of Sainsbury USA operation is still very vague. In spite of internationally recognized expertise of UK grocery retailers. Employment Characteristics Part-time employment is high. There has been increase in labor turnover levels but strong retention policies have been followed like higher hourly rates etc. ii. 21 | P a g e . Moreover there has been well-built centralization of decision making all over the sector. for purposes of analysis core competencies are identified in: i. Retail Operations The companies are now moving to larger units on edge/ out of the town sites because of economies in cost additional service benefits. There has been increase in graduate recruitment for store management and head office positions. Although operational areas are intrinsically inter-linked. Apparent move to multi-format channel operations from single format operation (superstore) had been seen. approximately 75% particularly at store level.3 Internal Characteristics and Competencies An analysis of internal characteristics and competencies within retailing provides an assessment of core competencies and capabilities. Moreover. Also efficient customer response systems and sales based ordering systems are implemented. Addition of services and general increase in service level like checkout speed. there has also been high segmentation of shop formats and larger shops for understanding the customer’s in-store behaviors. The concept of price focus is applied to key product lines so as to increase sales and revenue. Moreover very advanced systems and procedures are introduced and the companies using them effectively are seen as industry leaders. (Source: Competitive analysis of the Retail sector in UK prepared by Professors Steve Burt and Leigh Spark and submitted to Department of trade and Industry) 22 | P a g e .iii. And now you can create your own customized pizza and hot-chicken meals. The category management approach has been used to merchandising and supply chain activities. are also observed. Customization has also increased with the scope for customization salad bars. car parking policies and range of trolleys etc. iv. Supply Chain Management An analysis of supply chain management within retailing will also help assessing the core competencies and capabilities. Marketing Activities The segmented retail brand has been developed in very high proportion. Centralized distribution systems are taking place via Regional Distribution Centers. It has been observed that there is better involvement in and management of all aspects of the supply chain which is a very good indicator. The product ranges have been widened especially in non-food items and also there has been addition of variety in core ranges. senior directors and company departments should be aware of this analysis. These analytical tools rely on historical data to predict the future assumptions. Using of these analytical tools may be time consuming as each and every aspect is to be considered properly.2 Analytical Tools for Competitive Analysis Analytical methods and tools are very vital to ensure that proper level of consistency and strictness is applied to the analysis.4. functions or even organizations. The main motive of using this analytical tool is to sharpen the focus of the analysis and to make sure that a proper methodological and balanced approach is followed. The tool which is used must help the organization to answer the question for which the tool is being used. The key stakeholders like the board. Because if the tool is defined clearly then it is more likely that the purpose for which analysis is done will be solved and the objective can be accomplished successfully. It is very essential to take care when interpreting results of this analysis. There are number of considerations that one should be aware of while making the use of these analytical tools for competitive analysis. The tools which we will be using for our report for competitive analysis are as follows: 23 | P a g e . First the expected benefit of using the tool must be defined properly. Enough time should be given for collaboration and advance warning should also be given so that people can accommodate the analysis as many tools benefits from input and collaboration with other people. Or else it is not worth using that tool. Only then they will be able to provide proper commitment which is very essential to complete the analysis. Political Factors Includes government regulations and legal issues and define both formal and informal rules under which the firm must operate. economic. potential and direction for a business.1 PESTEL Analysis PESTEL analysis refers to the scan of external macro-environment in which a business operates. It helps to understand the political.2. It can be mainly used for the purpose of evaluating the market growth or decline and also the position. socio-cultural and technological environment in which the organization operates. Some examples are:      Tax policies Environmental Regulations Political Stability Trade Restrictions and Tariffs Employment Laws Economic Factors Affects the purchasing power of potential customers and the firms cost of capital.Tools used for competitive analysis 4. some examples are:     Economic Growth Inflation rate Exchange rates Interest rate 24 | P a g e . Some social factors include:      Health consciousness Career attitudes Emphasis on safety Age distribution Population growth rate Technological Factors Technological factors can lower barriers to entry. the level of significance depends on the type of business. reduce minimum efficient production levels. social factors are more relevant to consumer business or B2B business near the consumer end of the supply chain. political factors are of more significance. 25 | P a g e . Like.Social Factors Includes the demographic and cultural aspects of the external macro environment. These factors affect customer needs and the size of potential markets. The four paradigms of PEST analysis varies in importance depending on the type of the business. Thus. Some of the technological factors includes:     R&D activity Automation Rate of technological change Technology incentives These factors of PESTEL analysis can be classified as opportunities or threats in a SWOT analysis. While for a defense contractor or aerospace manufacturer. It is often practical to complete PESTEL analysis before completing SWOT analysis. and influence outsourcing decisions. This theory is based on the concept of five forces. it can be used also to identify areas of strengths so as to improve weaknesses to avoid mistakes. 26 | P a g e . Porter’s five forces is helpful in comprehending the strength of an organization’s current and future competitive position which it may look to move into.2 Porters Five Force Analysis Michael Porter of Harvard Business School developed Porter’s five forces of competitive position analysis in the year 1979 for the purpose of assessing and evaluating the competitive strength and position of a business organization. By understanding in which area the company has power.2. These five forces helps determine the competitive intensity and attractiveness of the market. Porter Five Force Analysis Strategic analysts use Porter’s five forces to examine whether new products or services are potentially profitable or not.4. It helps to identify where power lies in a business situation. Threat of Substitution. offering undifferentiated products and services. An assessment of how easy it is for buyers to drive prices down. then profitability will decline to a competitive rate. patents. they are often able to dictate terms. which erodes profitability. Available at: www. for example. The key driver is the number and capability of competitors in the market. Buyer’s Power Competitive Rivalry. This is driven by:  the number of buyers in the market  the importance of each individual buyer to the organization  The cost to the buyer of switching from one supplier to another. capital requirements or government policies. 4 4 [Porter’s Five Forces Model. Threat of New entry.businessballs. Unless incumbents have strong and durable barriers to entry. This is driven by:  the number of suppliers of each essential input  the uniqueness of their product or service  the relative size and strength of the supplier  The cost of switching from one supplier to another.htm (Accessed 12/8/2011)] 27 | P a g e . Profitable markets attract new entrants. Many competitors. Where close substitute products exist in a market. If a business has just a few powerful buyers. will reduce market attractiveness. economies of scale. it increases the likelihood of customers switching to alternatives in response to price increases.Each of these five forces are explained below: Supplier’s Power An assessment of how easy it is for suppliers to drive up prices.com/portersfiveforcesofcompetition. This reduces both the power of suppliers and the attractiveness of the market. Strengths and weaknesses are internal to the organization. while on the other hand opportunities and threats are external.2. opportunities and threats are plotted on a simple 2x2 matrix.3 SWOT analysis A SWOT analysis helps in understanding the strengths. SWOT analysis diagram SWOT Analysis 28 | P a g e . opportunities and threats involved in a project or business activity.4. It commences by defining the objective of the project or business activity and identifies the internal and external factors that are important to achieving that objective. weaknesses. weaknesses. These strengths. ‘price is £2 per unit lower than competition’. a mixture of options generating tools should be used.  It is to be ensured that only specific. 5 5 [Source: Strategic Analysis tools: Prepared by Jim Downey and Technical Information Service October 2007] 29 | P a g e . Thus.  The Issues which are identified are preserved and used later in the strategy formulation process. For example instead of using ‘good value for money’. which may be comparatively less actionable. verifiable statements are used.  This analysis is mainly used and focused at the project level or the business activity level rather than that of the total company level. It should also include proper risk assessment so as to ensure that high impact threats and opportunities are clearly identified and dealt with in priority order. No one tool is likely to fully comprehensive.  All the Internal and external factors are prioritized so that time is not wasted on the factors which are not important and is utilized concentrating on the most important factors.The following things are to be kept in mind while using SWOT analysis.  SWOT analysis is not a tool which is similar in all the scenarios. 22 stores in Wales and 8 stores in Northern Ireland.4. The application succeeded for Morrison was 41 and it was 33 for ASDA. It was three times more than Sainsbury.3 Assessment of top two players (Retail superstores) on the basis of number of stores As per the study conducted by panorama and the BBC news team.e. which had 111. In two years’ time span up to November 2010. Tesco’s applications for 392 stores got approved. Tesco. Sainsbury. ‘the big four’ companies i. 67 stores in Scotland. Morrison and ASDA got permission for 480 stores in England. 30 | P a g e . 000 products including foods at suitable localities. It provides broadband I internet connections and also financial services through Tesco Personal Finance (TPF). 2010) 4. Tesco operates approximately in 4331 stores in around around It 14 the countries world. 31 | P a g e . Which sell a variety of food products in town and city centers. As per the data collected by Data monitor (2010). As per the study by panorama and the BBC news team top two companies are Tesco (392 stores) and Sainsbury (111 stores). It had revenue in excess of £54 billion in 2009 and employed over 470. Europe and Asia and its Head Office is at Hertfordshire. Tesco has its online portal namely tesco.1 Tesco Overview Tesco is one of the largest food retailers in the world. 7.3. operates primarily in USA. UK. Which sell both food and non-food items including books and DVDs.000 people. the commercial network portfolio of Tesco comprises: Over 960 Express stores 170 metro stores 450 Superstores Which sells approx.com and tescodirect. (BBC Panorama.com through which it provides online retail services.This project carries out the competitive assessment of the top two players on the basis of number of stores in UK. 2010). The following pie chart represents the comparative positioning of Tesco’s market share with other leading players market share (Euromonitor.Tesco was founded in the year 1919. It included three malls namely Anshan.  Tesco signed an agreement in the year 2009 to set up a planned series of joint ventures for the development of shopping malls in china.1.  Moreover. It launched its first store in Edgar.3. UK in the year 1929 (Tesco. Over the decades it has evolved to become the market leader within the UK food retail segment (Datamonitor. promoted free flow of foreign trades by removing all the barriers. 2010): Share of Leading Players in UK Food Retail Market 4. 18 new hypermarkets are expected to open in China by 32 | P a g e . to introduce itself to China’s agreement with WTO . Fushan and Qinhuangdao.Tesco world’s most profitable market encircling over 1. With this it encouraged the western companies. This analysis is done by identifying the forces which have impact on Tesco’s performance: Political Factors  The recent agreement of China with WTO. 2010). London. including Tesco. 2010).3 billion people (Straits Times.1 PESTEL Analysis The PESTEL framework presented below analyses the dynamic and unpredictable environment in which Tesco operates. Promotion of Free Trading  Globalization benefited the promotion of free trading blocs by government. It has been presented in the writing (Lynch. Recession Negative Impact on Tesco  Due to this. 2003).  Ten more countries got immersed into EU (European Union) which took place in 2004 for the purpose of encouraging trade between Western and Eastern European countries (BBC. the spending power of consumers is again on a steady rise as they are more confident about their current financial situation. which will negatively affect both sales value and margins of Tesco. Economic Factors  Economic factors are of vital importance as it directly impacts the buying behavior of customers.  Tesco’s international business segment growth is on rise and it is predicted to account for 1 quarter of the company’s profit. 2009). 2009). Blocs  This provided Tesco a platform to expand its retail network across the EU. 33 | P a g e . encompassing organics and ready prepared meals.  But still there is a lot of financial uncertainty due to which consumers are likely to spend very amount less on the premium products. 2010). (Keynote. the substantial reduction in interest rates by the government helped to minimize further rises in unemployment during 2009 (Euromonitor.  The UK economy was declared officially under recession in the 2008.2010 (Tesco. 2010). However. 2009): UK GDP Growth 1989-2009 34 | P a g e .  The percentage of overall consumer spending on food has risen considerably over the years. 2010): UK Spending on Food as % of Overall Consumer Spending 2004 to 2008  The economic downturn has been brought to light with the assistance of the following GDP growth graph since 1989 (Mintel. The positive aspect of recession is that people will now eat out less and eat more at home which provides opportunities for grocery retailers like Tesco to increase their output (Guardian. as shown below (Euromonitor. 2010). Recession Positive Impact on Tesco  It is much obvious that food is the last thing that customers will cut back on. 2010). 35 | P a g e . 2001). smaller deliveries are still considered to be ineffective and more expensive. Age Factor  They are less likely to travel to supermarkets to shop compared with the younger generation. representing the baby Boom generation (Herald Scotland.  It has predicted that the ageing population would find online shopping more convenient although the internet literacy level drops over the age of 65 years within the population (Turban et al.  Tesco considering this factor has accommodated the demand of consumers for organic food.  It is seen that the ageing population is discouraging for the food and the older people tend to eat less. Attitude towards food  It was Tesco who introduced Payment by cheques and cash at the checkout. It provides wide range of organic food so as to meet the consumers demand.  The attitude of consumers towards food is continually changing as they have become more health conscious.Social Factors  There are more retired people than children in UK as per the analysis conducted.  But. This usage is showing a steady growth. 36 | P a g e . 2010). 2010).  Usage of internet for online grocery retailing has affected the operation of supermarkets. Loyalty Programs -  Loyalty programs introduced with the help of information technology discourages customers from switching over to their competitors (Sun.  Tesco uses an application named New Wine App which was developed by Cortexica Vision Systems since 2009. operations and processes Use of Internet of grocery and food retailers. IT  Another technology .Mobile technology has also been a good platform for distribution within food retailing and it is increasing Mobile Technology day by day.  Internet Subscriptions have grown by over 50% and it has been estimated that the Internet is being used by 70% of the population in the UK (Office for National Statistics. 2009). It is through this application that the customers are directed to Tesco Wine helping them to buy the selected wine directly from their mobile phone (Tomlinson& Evans.Technological Factors  Technology is one of the key macro-environmental factors that have directly influences the supply chain.  This leads to reduction in overall cost and is good for Tesco’s corporate social responsibility image. Due to increased access to broadband internet in UK.5 million which accounts 70% of the overall market.  Tesco introduced its Greener Living Scheme.  The consumers trying to cut down the number of plastic bags they take from the shops have risen from 65% to 68%. Tesco’s Greener Living Scheme  37 | P a g e . potatoes and orange juice due to the consumer awareness of the carbon footprint of the firm (Wood. With this scheme it gives consumers advice on environmental issues. Online Retail Shopping  As per the analysis by Keynote 2010 the number of broadband users in the country is 15.  Tesco has added carbon footprint data on dairy products. Environmental Factors  Environmentally friendly packaging is being promoted by the Government. 2010). the percentage of consumers using reusable bags has raised from 71% to 74%. online retail shopping has gained considerable popularity. 2009). 2009). Carbon Footprint  And it also aims at expanding it to bread and non-food items in 2010 (Tesco. Use of Reusable Bags  As per the data collected by the Office for National Statistics (2010). including how to reduce food waste and their carbon footprint when preparing meals (Yuthas.  The 2008 and 2009 combined up-ratings have resulted in an increase in the minimum wage of 15. 38 | P a g e .5% as per the Low Pay Commission Report (National Minimum Wage.  Rise in VAT will also affect the non-food sectors of Tesco. Green club Card Points  Those Consumers reusing bags. such as clothing. VAT 2010). Minimum Wage  This will in turn result in an increase of operating costs of supermarkets. (HM Treasury. Legal Factors  Since the government has to finance a huge budget deficit. 2009). it has been predicted that VAT would have to rise to 20%. recycling mobile phones and aluminum cans and preferring bag less deliveries are being rewarded through these points. Tesco rewards its consumers through Tesco’s green club card points. I have used Porter’s five force analysis in order to analyze the competitive environment. ASDA. Tesco.  Furthermore Tesco is getting hold of these shops by introducing Express stores in local towns and city centers creating an obstacle for these substitutes to enter the market. They account for approx. off licenses and organic shops.  In the food retail market the major substitutes are small chains of convenience stores. Threat of substitute products and services The threat of substitutes is considerably low for food items and medium to high for non-food items in the grocery retail market.2 Porter five force analysis In order to find effective sources of competitive advantage. an investigation of the structure of the industry should be undertaken (Porter. 80% of all shopping in the UK (Mintel. 39 | P a g e .3. 2010).1. It should be kept in mind that so long as the economic recession prevails customers will be inclined towards discounted prices and hence Tesco is a threat to the specialty shops.4. A huge capital investment is required in order to be competitive and to create a brand name. So the new entrants have to produce something impressive at an exceptionally low price and high quality in order to create and then sustain (once entered) their market value. But this cannot be seen as a threat to supermarkets like Tesco that offer high quality products at considerably lower prices (Financial Times 2009).  On the other hand the threat of substitutes for non-food items is fairly high (for example clothing). 1985). Sainsbury and Morrison are the major brands that have already captured the food retail market. Threat of entry of new competitors   For the food retail industry the threat of entry of new competitors is low. Waitrose and Morrison. New entrants also have barrier to entry as gaining planning authorization from local government takes an ample amount of time and resources to establish new supermarkets.  Consumers are more interested in discount offers especially during the time of recession. 2010) The slow market growth essentially means that these increasing market shares from competitors have intensified the market rivalry. ASDA.  In rural areas where the next-door superstore are some distance away.1% from 15.  The following things about the competitors must be highlighted: ASDA is one of the key competitors in this segment with an increase of market share from 16. which are competing with each other over price. majority of the consumers residing in those rural areas are attracted by such retailers like Somerfield and Co-op.6% to 16.6% from 11.8% during the fiscal year 2010/ 09 Sainsbury has shown an increase to 16. products and promotions every now and then. including. 40 | P a g e . Sainsbury. Intensity of competitive rivalry  The intensity of competitive rivalry in the food and grocery retail industry is very high. 2010). It was found that hard discounters like Aldi and Lidl recorded growth of sales of over 25% in the year 2008 (Keynote. which is threatening Tesco’s market leadership position. Tesco has severe competition from its direct competitors.8% and Morrison’s to 11.3% through the same period (Euromonitor. Tesco’s share in UK grocery retail market in the year 2010 was around 30. the prices of products can easily be compared and thus can be selected easily. (Euromonitor.3. weaknesses.3 SWOT Analysis The following is the Strengths. Tesco is ranked 3 rd largest grocery Retail Company in the world. The switching cost is very low in cases where products have a slight differentiation and are more standardized. Its operations are there in around 4331 stores primarily within the USA.1.Bargaining power of buyers   The bargaining power of buyers is fairly high. Bargaining power of suppliers   The bargaining power of suppliers is fairly low. Moreover. This is mainly because the suppliers are inclined towards major food and grocery retailers and dread losing their business contracts with large supermarkets. Asda.7%. opportunities and threats (SWOT) analysis of Tesco. Strengths  As per the statistics of Data monitor 2010. It has been proposed that customers are attracted towards the low prices. The position of the retailers like Tesco. Sainsbury and Morrison is strengthened further and also the negotiations are positive in order to get the lowest possible price from the suppliers. The buyers can easily switch over from one brand to another. 41 | P a g e . Europe and Asia. 2010). with the availability of online retail shopping. 4.  Tesco showed a strong financial performance over years which underline its strategic capabilities. The primary strategy that Tesco adopted is product and services customization as required by the consumers and thereby in accordance with the market demands. The following chart depicts the efficiency in performance of the company over the last decade with the help of growth in following indicators ( Fame. The 42 | P a g e .  By introducing the loyalty scheme called ‘Tesco Club Card’ Tesco has proved customer retention strategy. the turnover of Tesco is £ 54billion which was an increase of 14. 2010): Tesco – Yearly Growth in Key Performance Indicators  Tesco also uses the strategy which gives prime focus to product affordability in order to ensure that the customer gets the product which can suit their budget without compromising on the quality aspect of the product. As per the statistics of Data monitor (2010).9% when compared to 2008. By this geographic diversification the company will get benefit and will be able to improve on its economy of scale. 2010). It accounted for over 1 million customers in the year 2010 (Guardian. it has not been able to perform well over the last year although being a market leader. while minimizing its systematic risk exposure. This provided an opportunity to the company to attract new customers and decrease the overall cost and thereby raising profit. These products included company’s value lines. which had resulted in a financial loss as well as damage to its brand image. which had been marketed as a high quality cheaper alternative to key brands. 2010).  Tesco.company uses the data which is collected from this loyalty scheme in its powerful CRM systems named Crucible and Zodiac.  The lack of geographic diversification can also be seen as a key weakness for the firm as the majority of the operations of the company are concentrated within UK retail sector only (75% of its revenue – fiscal year 2009 ) (Tesco 2009). This information is then used for various direct marketing and other promotional techniques. As per the Mintel report 2010. Around 620 stores were opened in the year 2009 out of which 435 were international (Mintel. 43 | P a g e . Weaknesses  Comparing Tesco with its competitors.com is gaining popularity day by day and is growing rapidly. there were number of products which were recalled by Tesco in the year 2010. It becomes a major weakness as it is subjected to systematic risks of UK market. Opportunities  Tesco’s commercial network portfolio is ascending year on year. Entering into Indian market will indeed strengthen its global market position. It is basically due to fact that even at the time of recession food retail is toughest segment as having enough to eat is a basic priority.e. 2010).  With the rise in unemployment and decrease in the income. 2009). Thus. particularly in the non-food items segment. a retailer of Tata group. Tesco’s focus is on global expansion. Even though Tesco has been leading this market since 15 years (Mintel.  It is forecasted that the food retail market will rise from £125 billion in 2009 to £145 billion in the year 2014 (Euromonitor. This can be seen from the evidence of it entering into the Indian market. Sainsbury and Morrison. Threats  Global financial crises resulted in the reduction of UK's economy by 2. 44 | P a g e . 2010). 2010). Tata Group is one of the largest industrial corporations in India (Daily Mail.  Severe competition prevails in UK grocery market.4% in the year 2009 which is estimated to contract further by 4. Tesco’s concentration in the UK market can have a harmful impact on its financial standings. Tesco has signed a limited franchise agreement with Trent. it now faces an intense competition from its competitors which are gaining the market share. the discretionary buying behavior of consumers has adversely impacted the sales of the company. These competitors includes the rest of the 'big four' i. Asda.2% by IMF (Poulter. php) 45 | P a g e . 6 Tesco Abridged SWOT Analysis 6 (Source: http://www. weaknesses. the abridged SWOT analysis can be seen from the following diagram.ivoryresearch. opportunities and threats.After looking at the key strengths.com/sample36. It comprises of Sainsbury’s Supermarkets.4. Bells Stores.000 colleagues who are committed to deliver 'Great Food at Fair Prices'.2 Sainsbury Overview J Sainsbury PLC is one of the most leading UK food retailers with interests in financial services. The company's policy is to work with all of our suppliers fairly. sustainable financial returns. recognizing the mutual benefit of satisfying customers' needs. They aim to ensure all colleagues have opportunities to develop their abilities and are rewarded for their contribution to the success of the business. 2008). The Porters five force analysis discusses briefly its decision to diversify into convenience stores. This is further discussed in a PESTEL analysis. They also aim to fulfill responsibilities to the communities and environments in which they operate" (Sainsbury's. In order to expand its local sourcing wherever possible. Local. One of the strength which is discussed in SWOT analysis is that it sells £6bn of British food every year. a concept which is considered in the Porter's 5 forces analysis. The major objective of Sainsbury is "to serve customers well and thereby provide shareholders with good. Sainsbury Online and Sainsbury's Bank.3. There are around 455 supermarkets and 301 convenience stores across the country. The company serves 16 million customers each week. It employs 148. Jacksons Stores and JB Beaumont. the 46 | P a g e . 47 | P a g e .e Tesco. even though Sainsbury is very well established among the consumers.  These allegations may lead to a negative public image as the people might feel cheated. Corporate Tax  The government is planning to decrease the rate of corporation tax from 30% to 28% in UK. named 'supply something new' with the purpose of making it easier for the small and mediumsized suppliers to gain access to Sainsbury. Sainsbury. as it is at the forefront of this allegation (Rigby 2008). It has a network of over 3.500 local suppliers. Increasing Globalization  The main challenge it will face will be to compete against the unknown forces & to give the best quality / financially viable products from world over. Asda and Morrison can have some negative impact to the industry in general and Sainsbury Four’ in particular. poses a challenge as well as an opportunity to Sainsbury's. (HM Treasury 2008).1. PESTEL Analysis Political Factors  Increase in globalization.company works closely with smaller. 4.2.  With the increase in globalization it can also enter the markets of emerging companies through joint ventures or partnerships so as to investigate these new markets.scale suppliers. They can with the help of that make the locally produced food available to more customers (Annual Report 2007). Price Fixing among the ‘Big  The current investigation of price fixing between the big four retailers within the UK i.3. even though it does not have any plans on the horizon to do so. This will save big companies like Sainsbury’s significant sum of money. Sainsbury also introduced an innovative scheme in May 2006. (economist. 48 | P a g e . Even though they will buy the essentials. Impact of Stiff Competition  Due to cut throat competition within every segment of retail sector. Credit Crunch  Due to reduction in the purchasing power of consumers.  In addition to this.  In case of Sainsbury bank.  Due to this the prices will have to be driven down most of the time thus it will affect Sainsbury.Economic Factors  Global food crises has increased food prices all over the world. retailes are now giving a lot of incentives to the consumers (Annual Report 2007). this will impact the margins of the organization and it may lead to passing over the cost to consumers by increasing prices of most things in the supermarket. credit crunch directly affects its ability to provide credit especially because it is not an established name in the financial services industry.  As Sainsbury also runs a financial services company with HBOs.com 2008 [online]). something that has a greater profit margin for Sainsbury's.  Moreover. credit crunch can have a two way impact on Sainsbury (Annual Report 2007).  One impact may be that the credit crunch might reduce the purchasing power of consumers. which has resulted in rising the purchasing cost for all the major Global Food Crises companies including Sainsbury. but still they may be more cautious. rising fuel costs will also have implication right throughout the supply chain of Sainsbury's leading to an overall state of escalating prices. it is possible that they may spend less on luxury items. specialist delivery companies like Ocado (working in partnership with Waitrose) provide an alternative for the outsourcing of non-core work. If used cleverly. While comparing to its competitors like Tesco. with British shoppers accounting for more than a third of all revenue by 2011. 49 | P a g e .uk 2008 [online]).  Due to this many consumers have shifted towards healthier food which shows an opportunity for Sainsbury to stock up with more healthy food. 2007).Social Factors  These days more emphasis is given on fresh. the online retail sales in Europe will reach to Eur263bn. it can leverage the internet to its advantage.  However.  Moreover huge emphasis is also given by the government to promote healthy eating (eatwell. Technological Factors  Internet phenomenon has become very popular in western countries. It can also create healthier food at a price lower than its competitors so as to benefit from this new trend. Tesco use its own online delivery model successfully. It gives Sainsbury an opportunity to encourage new recipes and Cooking Style and healthy eating unfussy eating. easy style cooking.  Sainsbury can also use internet and can make better services for customers. primarily for for the reason of reducing the increasing level of obesity within the UK (department of health 2008 [online]). Use of Internet  The Internet accounts for 8% of global advertising spend and is growing rapidly (The Economist.gov.  As per the prediction. RFID  If adopted. Ethical Issues  It means that the growing importance of such issues will compel companies to cater to those consumers as well as the consumers governed by price. Environmental Factors  These days most of the big western companies gives more Carbon Footprint emphasis on reducing the carbon footprint and increasing energy efficiency (Bream 2008). One of the problems with supermarket shopping is that of the queuing system which the customers often find themselves in at the Queuing Systems checkout. 50 | P a g e . especially for customers who have to queue up for very few items.  Ethical Issues like sale of organic food and the ethical treatment of animals. more profitable organization (directions magazine 2008 [online]).  Moreover it can also help Sainsbury to boost sales as it can help in opening stores for 24 hours. clearly affect Sainsbury on various levels.  This is a very sensitive issue as the company will have to balance their public stand on environment without losing the consumers due to the increase in prices.  This means that Sainsbury will have to invest more on green issues.  Companies like ASDA and Tesco has employed Self-checkout machines which can help solve this problem. this technology may lead to fewer inventories for the supermarket firms leading to a leaner.  This is just not a backburner issue anymore and each and every firm will have to prove that they are reducing their impact on the environment.  RFID (Radio Frequency Identification Device) technology can be used for significant benefits to the supply chain of Sainsbury.  This will be an additional Burden on the company. Sainsbury Interest in Financial Services  Sainsbury also has interest in the financial services besides the supermarket concept. Although this is a positive trend.2 Porters Five Force Analysis Competitive rivalry Competitive rivalry  The UK retail market is very competitive and crowded market.2. there is even more legal scrutiny in the operations of Sainsbury bank which indicates that there is more responsibility regarding legal compliance and other risk measures.9% in the year 2007.3.  Sainsbury enjoys a market share of 14. 4. Due to this interest in financial services. The market share has been steadily increasing since its restructuring programme in the year 2004 (Annual Report 2007).Legal Factors Strict Laws on Food and  Sainsbury will have to follow more and more packaging and Drinks labeling policies to deal with ever rigorous and stringent laws on food and drinks. it is lagging well behind its competitor and market leader Tesco and it has to get more market share. 51 | P a g e . Many companies have entered into non-food sectors (Rigby and Killgren 2008) and many more are still trying to get into non-food sectors thereby further intensifying the competition.  Sainsbury is also into non-food products such as financial products. each have different competitive advantage over their competitors. These products face stiff competition from Banks and building societies as it is not a core business for Sainsbury. so as to increase the buying experience of the customers. 52 | P a g e . foreign firms may find it difficult to replicate. organized retail is amongst the most sophisticated sectors within the UK and requires heavy investments. along with significant brand development. which means there is little scope for new entrants to establish themselves. UK has reached its maturity level and is at an advanced stage within the UK and most of the western world. Firstly. which takes years to establish (Doyle 2002). Sainsbury’s competitive advantage is its reach in the convenience stores thereby having a larger customer reach. Hence. This is corroborated by the presence of few global supermarkets within UK. This makes it very difficult to substitute.  Local knowledge plays a very crucial role in the retail food sector. Secondly. Barriers for entry  Barriers to entry are extremely high especially in retail Food sector due to various factors. the other three big supermarket chain in UK. Threat of substitute products and services  The threat of substitute products in the retail food sector is low as the consumers view it as a necessity in the developed world and emerging markets  There is continuous innovation in the retail market with respect to food products or alternative businesses. Sainsbury’s competitors such as Tesco. Morrison’s and ASDA. If any super market doesn’t sell these products which are very popular.  Supplier suppliers will not be much considerable because of their sales volumes on dependence on these supermarkets. The only difference is the price and customer loyalty and increasing adoption of green standards. which have huge brand appeal. when sales of Cadbury's dairy milk increased through the successful Gorilla ad campaign (Wiggins and Urry 2007). The major threat of substitute is an internal industry threat whereby one supermarket can acquire all the businesses of other supermarkets. the Buyer power is very high in this industry. For eg. P&G. Supplier power  Supplier power is a little complicated as it is difficult to categorize it. then consumers will shift their loyalties to other supermarkets while will lead decrease in their total sales volume. Hence this makes the Suppliers very powerful. increasing their power considerably. it is easy and cheap for consumers to switch over. and Cadbury etc.  As the economy goes further towards recession (O'Doherty 2008) consumers' needs are likely to be given more weight. 53 | P a g e . Moreover. It would be advisable to call it a mutually dependent relationship as suppliers themselves are huge companies like Unilever. Buyer power  Due to presence of many competitors and almost every competitor selling the same product. Further Sainsbury’s enjoys the reputation of an innovative and positive consumer brand and is like by green activists as well as consumers.com 2008 [online]).  Sainsbury has built an excellent team lead by a very experienced Chief Executive Mr. In the year 2007 it recorded an increase of 7% in its turnover and a huge increase in profit after tax of 450% (Annual Report 2007). who is very well known for his work at Sainsbury’ s.4. "With Jamie Oliver.3 SWOT Analysis Strengths  Sainsbury’s demonstrated real turnaround in its business by showing thirteen straight quarter of growth (Rigby and Braithwaite 2008). Apparently the supermarket had to order nine tons – the equivalent of two years' supply – of nutmeg to meet demand when it appeared in one of Oliver's hundred-plus ads" (Dickinson 2008) Weakness  The takeover bid by the Qataris Private equity firm last year (Arnold and Politi 2008) may have some implications as people are gravitating towards British Companies and any prospect of Sainsbury being taken over and 54 | P a g e . it has been simple for Sainsbury's to see uplifts in sales of specific ingredients that have been featured in ad campaigns. Furthermore its effort in closing gangmaster (Taylor 2008) has created a positive effect on general public.uk 2008 [online]). (timesonline.3.2.Justin King.co.  Sainsbury has successfully adopted green and environmental issues and also started with various recent initiatives like buying fair-trade bananas (economist.  It has a strong advertising campaign where several celebrities are endorsing its products and has resulted in increased sales.  Sainsbury’s operations are subjected to various regulatory requirements like planning. employment. However..governed by a foreign company may lead to customers changing their loyalties. which is more aggressive on global expansion (economist.com [online] 2008). e-commerce seems to be great opportunity as well. environmental issue. pensions and tax laws and in terms of regulations over the group’s products and services. for eg. Sainsbury’s has not entered international markets.co.  As compared to Tesco. Opportunities  Sainsbury’s senses great opportunity for future growth through its alternatives businesses like investment in property (Killgren 2007). Threats  Sainsbury has taken initiatives into green and other environmental issues. competition.uk [online] 2008) affecting its prices within the UK and thereby making Sainsbury’s customers bear the brunt. Also its goal of £40 million profit through its bank seems to be a good strategy to pursue. 55 | P a g e . This is a cause of worry as if they is any problem in regards to food retail in UK. then there needs be another source of revenue. a spurt in bio-fuels has made corn dearer (independent. since overheads costs are less and margins are more and it doesn’t require heavy investments. However. The main issue to balance both the things. to curb global emissions Bio-fuel is an important tool and moreover its use affects Sainsbury’s supply chain also directly. these require heavy investment without any immediate benefit.  With increasing popularity of online shopping. due to strong competition in UK retail sector in UK and mature markets. and Strategy Development. Different companies adopt different strategies. Tesco’s other competitive strategy is excellent customer service. For eg. In case of Tesco.1 Strategic Analysis of Tesco and Sainsbury Strategic Analysis is: ‘… The process of conducting research on the business environment within which an organization operates and on the organization itself. it adopts a hybrid strategy as its business-level or competitive strategy. the website of Tesco or the store advertisement always focusses on those products which are cheaper than other stores.1. Corporate-Level and International Strategy Corporate-Level strategy refers to an overall strategy of an organization and the strategic decision regarding the scope of an organization. Tesco has 56 | P a g e .1 Tesco Business-Level Strategy The Business-Level Strategy means the competitive strategies of the company and its choice. For this Tesco held a Customer Champions service where around 800 Tesco champions greet the customers as they enter the store and help them with any questions or concerns.5. in order to formulate strategy.’ -BNET Business Dictionary The strategies of Tesco and Sainsbury's are discussed in three parts: Business-Level Strategy. In case of Tesco. Corporate-Level and international Strategy. 5. Tesco’s main strategy is to be different from its competitors and at the same time offer lower prices compared to its competitors. As per Tesco website (Tescoplc. Internal development Due to rapid advancement in technology. Tesco adopted the strategy of globalization and further diversified into different countries. Tesco offers more product categories and also provides non-food products with grocery. Thereby it upgraded its technology and adopted electronic retailsupplier communications systems. in the third quarter of 2005 non-food products shows excellent sales growth. In fact. It also purchased 13 HIT stores in Poland. In the year 1997 Tesco diversified into offering non-food business of personal finance and petroleum products. currently they operate in 14markets across Europe. it acquired 862 T&S convenience stores. For eg: To further increase its market share in UK. Further. Asia and North America. due to rapid globalization. recently Tesco is focusing more on the non -food items. it even implemented automatic replenishment and stock control system. Strategy Development The method of strategy development can be classified into 3 types : internal development. In the year 1999 Tesco went online and started its e-commerce website ‘Tesco. Further.adopted the strategy of business diversification. Tesco understood that it requires adopting new technology if it wants to enhance its efficiency and develop its capability. For eg. As per data. Acquisition Tesco’s prime strategy of organic growth has been Acquisition. Their goal was clear “To be an outstanding international retailer in stores and online”. 57 | P a g e . acquisition and joint development. Their strategy was clear “To be as strong i n everything we sell as we are in food”.com’.com). On similar lines of Tesco. Sainsbury's strategy in the three aspects can be list as follow: Business-Level Strategy Sainsbury's is one of the oldest retailers in food sector in the UK. to offer Financial products and Personal Finance it entered into joint venture with Royal Bank of Scotland. Compared to Tesco. Sainsbury gives details on the process of food production and how it chooses the raw materials to process the food. Sainsbury has adopted the strategy of business diversification. Hence. To demonstrate this.. 5. for eg. Sainsbury has started concentrating on price of the product along with quality. which at present is the largest food retailer in UK and is known to offer customers very cheap prices. due to entrants of various competitors.2 Sainsbury's Comparing with Tesco. Corporate-Level and international Strategy Just like its major competitor Tesco. Currently around 80stores are providing dedicated non58 | P a g e . it has entered into various joint ventures to fulfill its commitment of offering different products. to offer Petroleum products it entered into joint venture with Esso and BP at its various Express and other large format stores. Sainsbury’s main focus has always been on providing high quality products. However. Sainsbury has also increased the number of non-food lines along with regular food products and thereby offer more variety to its customers.1.Joint development Tesco has always adopted the strategy of diversification and offering its customers vide range of products including non-food items. Hence. Further. Strategy Development Internal development Sainsbury opted to give proper training to its employees. This strategy would help Sainsbury to expand its market share. Acquisition Sainsbury took over and purchased 14 stores from Morrison including 13 Safeway branded stores and one Morrison stores which was primarily located in the Midlands and north England. every salesman was giving special training on customer service and thereby aim to improve the service quality. Further. it introduced a two-day training course. the management has decided to open specialist cook shops in main outlets and take advantage of Sainsbury’s reputation for giving fresh products and thereby capture more up market lines. Few stores are also offering clothes and children’s products. it failed to establish itself. Sainsbury had opened stores in other countries such as USA and Egypt. 59 | P a g e . however due to lack of proper market research and implementation of proper strategies. Since then it has not achieved any success in international markets and even had to wind up the stores it opened in USA and Egypt.) have started providing new non-food lines.food spaces and around 2500(approx. Around 1000 employees including store managers and central team members including the senior management and Board attended this training course. and it has obtained some improvement.2 Evaluation and Recommendations We have already seen the SWOT analysis of both Tesco and Sainsbury in the chapter of competitive analysis. expansion of stores  Positive trend in the pet care market To understand Sainsbury’s business environment as well as its strategic capability we can do a SWOT Analysis.Joint development Sainsbury opened stores in USA and Egypt. it decided to tie-up with other companies like Shaw supermarket and then enter the US market 5. regulations  Restaurant business booming in UK.6% to 15. Hence.9% till June 2005. Sainsbury's has raised its share from 15. 60 | P a g e . The SWOT Analysis matrix will help by giving an indepth understanding which will further help to develop effective strategies. however due the lack of market research it had to shut down its stores. After studying these strategies it is now important to analyze how this SWOT Analysis can be used to frame various strategies. Sainsbury's strategy has been greatly changed during the last ten years. Internal Strengths  Strong brand equity  Innovative financial services business Weaknesses  Decrease in profitability  Lack of exposure in international markets  Supply chain disruptions Threats  Strong competition in prices  Oversight in govt. External Opportunities  Increasing product line which can be added  Further. For example. However. there are deficiencies on its strategies. the competition for Sainsbury has grown from various stores such as ASDA. Hence. According to the analysis of Sainsbury's strategy. some recommendations are raised as follows:  Sainsbury is a very popular and well established brand in UK. Due to sheer size of Sainsbury and strong store network.  Sainsbury can increase its profitability by exploring more into pet care market as there is a positive and favorable trend in pet care market.. WT Strategic options It involves listing down options that can help to minimize weaknesses and avoid threats. Tesco etc. The competitors such as Tesco are offering products at very low price resulting in Tesco becoming the largest supermarket in UK.  Over the period of time.SO (Strength-Weaknesses) Strategic Options It involves listing down of options that make use of the strengths so as to take advantage of the opportunities. WO Strategic options It involves listing down of options that take advantage of opportunities by overcoming weakness ST Strategic options It involves listing down options that make use strengths so that threats can be removed. it is highly recommended that Sainsbury also offers more competitive prices along with quality. it is recommended that Sainsbury should further expand the number of stores and thereby further increase its market share. Sainsbury can make use 61 | P a g e .  Sainsbury mainly focuses on food items and it appeals more to ‘food lover’. with projected CAGR of approx 3. Tesco still maintains to hold its leadership position.1 billion in 2009. Tesco has been able make the strategic use of 62 | P a g e . It should offer more product categories and try to avert this threat. The above analysis shows the competitive and strategic analysis of top two supermarkets namely Tesco and Sainsbury for which we can conclude the following. Hence. [Supermarket retailing Tesco vs Sainsburys (online) www. Recently.of its effective operations and cut down on costs and thereby offer most competitive prices to its customers. cheap and exciting offers and even add products other than nonfood items also to cater to most needs of their customers.2% for the period of year 2005-2009. However. 2011)] Chapter 6: Conclusion The UK Food Retail Industry faces immense high competition and low-price strategies. all big food retail companies such as Tesco.docshare.. Sainsbury and Morrison realized this and are focussing on offering its customers value for money products. in the recent times the restaurant business has flourished and customers love eating out at restaurants.4% for the five-year time duration ranging from 2009-2014. ASDA. The UK food retail industry’s total revenue was approximately $186. Within the highly turbulent retail segment. where companies are required to pursue both cost leadership and differentiation strategies. Sainsbury needs a serious relook at its strategies. with a compound annual growth rate (CAGR) of 4.com (Accessed on 25th August. It is expected to slow down. This will drive the industry to a value of $219.4 billion by the end of 2014. as identified in the Porters 5 forces analysis. which is well loved by its consumers. and importantly its profits. Sainsbury can do it either by thinking of international expansion or on price. as highlighted in PESTEL analysis it is not protected to many outside risks like recession and rising material costs. Even though it has shown good performance and steady growth it is very vital for Sainsbury's to go one step ahead by challenging Tesco. Using the competitive analysis tools. However. we can say that Sainsbury is an iconic food brand. Not only this will do. 63 | P a g e . Thus we can say that Tesco’s core competencies have been seen to be allied with the business environment and thereby showing a positive future outlook for the company. it should be done in combination with its increasing property portfolio and alternate businesses so that it can continue the strong growth path and can come over its threats (SWOT) in its external environment. It suffered a lot during its initial phases but since the year 2004 it has been able to improve tremendously its image.information technology and also it has been able to attain both by using lean and agile supply chain management. IDM lecture presented at Bristol Business School. Pearson Education.heraldscotland. (2007). economist.uk/blogs/panorama/2010/12/supermarkets_what_price _cheap.com/specialreports/displaystory. 'Use less power to cut emissions'. 7 November. 22nd Dec 2010.cfm#ii [Online]. P.7  Datamonitor (2010). Financial Times. Financial Times. Daily Mail. (2008). kpmg.co. 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