PESTLE and SWOT analysis of Sainsbury’s 2017
Kush Jonathan (2018) "Pestle and Swot analysis of Sainsbury's 2017" 123 Writing [Online] at https://www.123writing.com/free-sample/pestle-and-swot-analysis-of-sainsbury%E2%80%99s-2017
Sainsbury’s is currently the second biggest supermarket group in the UK with sales of £23.2bn for the year ending 2016 and a market share of around 14% behind main competitor Tesco. Together with Asda and Morrison’s, it makes up the UK Big Four oligopoly (Mintel 2016). Sainsbury’s customer profile is very similar to Tesco’s as they are both positioned as broad range superstores with strong non-food offers, and both pitched towards a lower EDLP. What this means is that Sainsbury’s is now focussed on offering Every Day Low Prices (EDLP) which is why it stopped its Brand Match offer in 2016, and nowadays does little vouchering and fewer promotions.
2.0 An overview of Sainsbury's current performance 2017-2018
The logic of Sainsbury’s £1.4bn takeover of Argos in 2016 is unclear to many given that Argos has problems (Armitage 2017). At a time when the company’s performance in food retailing has been less than stellar due to many factors, many industry observers argue the Argos deal will simply divert management time when it is most needed (Mintel 2016). Nevertheless, we believe that Sainsbury’s is better positioned than Asda in terms of coming to terms with competition from the two discounters Aldi and Lidl.
Using PESTLE, SWOT and Porters Five Forces analysis, the report will analyse why Sainsbury’s is well placed to handle a challenging food retailing environment in 2017 compared to rivals like Asda and Morrisons. Using SWOT, the report will look at the company’s core strengths such as Sainsbury’s reputation which has been built on quality and value for money, meaning it a trusted brand (Mintel 2016). Its purchase of Argos will also make for a stronger a non-food business which is still growing and thus will likely increase revenue. There already plans to convert 250 Argos outlets into Sainsbury’s stores over the next three years, an action that will be expensive and as will be discussed using PESTLE and SWOT, may yield little returns unless the company invests in a convenience format (Butler and Monaghan 2017).
2.0 Sainsburys Pestle Analysis 2017-2018
The current business environment which is affecting the UK grocery retailing industry is made up of both the macro environment and micro environment. The macro environment is the most general layer of the business environment consisting of broad environmental factors that impact all the supermarkets operating in the UK. Many macro level factors will directly impact both Sainsbury’s as well as rivals and thus it is important for management to find what these factors are. The starting point for analysing macro-level influences is the PESTLE framework (see figure 2) which can be used to identify how future trends in the political, economic, social, technological, legal and the environment will impact on an industry and all individual firms (Johnson et al 2008).
Using PESTLE, Porters Five Forces and SWOT, the report will examine how Sainsbury’s can take advantage of its strengths, opportunities created by a tough food retailing environment and faltering rivals such as Morrisons and Tesco, both in recovery mode, as well as benefit from the poor performance at Asda.
2.1 Political factors (government action)
In June 2016, Britain voted to leave the EU, a move many predict is likely to cause both political and economic upheaval and uncertainty for the UK economy, at least in the short term. Unsurprisingly, Brexit sparked off a cascade of effects including high inflation, devaluation of the pound which when coupled with wage growth depression and a sluggish economy, resulted in declines in consumer spending, which negatively affected UK supermarket sales.
2.2 Economic factors
Following Brexit, the pound sterling plunged to its lowest against the dollar for 31 years as financial turmoil intensified in the wake of Brexit (Toplensky et al 2016). Further, due to Brexit effects, Sainsbury’s takeover of Argos will give it financial headaches when it comes to coping when currency hedges come to an end and Argos’s dollar-priced imports hike up prices in the catalogues
With food price inflation and the long years of economic stagnation depressing wage growth in UK, many households have become price conscious altering their shopping habits in a fairly fundamental way. This is what has led to the rise of hard discounters like Aldi and lidi which offer their products at steeply discounted prices and this has negatively affected the food retailing market. Sainsbury’s is growing at its slowest rate since 2015. With the low and falling food prices benefiting the consumers in particular ,this squeeze on margins and profits isn't doing any justice to Sainsbury’s (Mintel 2017 2017)
2.3 Social factors
While economic factors (low wages, high inflation) are the primary cause of the dramatic change in people shopping habits which has affected UK grocery industry, there are also social changes driving grocery retailing. Many British shoppers are for instance abandoning their big weekly food shopping, instead preferring to spend their money across numerous trips to the local convenience store, especially the discounters and internet shopping (Mintel 2017). This has affected the sales and profits of big supermarkets like Sainsbury’s.
A forecast by IGD shows that spending in superstores and hypermarkets will fall from £73.7bn to £70.8bn over the next five years while at the same time, convenience grocery sales will double for discount retailers and on line (Ruddick 2016). Nevertheless, Sainsbury’s is still at an advantage since it has developed online food shopping and is also operating 806 convenience stores whose sales have increased by over 6% compared to the big supermarkets whose sales have dropped by nearly 2%.
2.4 Technological factors
With most businesses adopting the digital revolution and operating their businesses online, Sainsbury hasn't been left out on this trend. Sainsbury’s has introduced digital services like online food shopping and click-and-collect services where customers place their orders online and collect the shopping at their local supermarkets. Online retail sales have increased by over 80% and orders increased by nearly 20% during the year, which has helped Sainsbury’s cope with rapidly changing customers’ behavior (Annual report 2017).
2.5 Environmental factors
Recent trends that are influencing UK clothing retail industry include the rise of ethically and environmentally conscious consumers who continually demand firms to adopt practices such as paper packaging and use of recycled materials. A new environmental trend facing the food retail industry is consumer demand for zero waste supermarkets as food waste increasingly becomes one of the greatest environmental challenges facing the food retail industry (Mintel 2017). In response, zero waste supermarkets have already started opening in the UK. Food.Love in Totnes, Devon and At The Clean Kilo, Birmingham.
- New “sugar tax” levy introduced by UK government aims to reduce content in sugary drinks by 20% by 2020 will impact supermarket own brand products
- New rules banning advertising of high-fat, salt and sugar (HFSS) food or drink products to children under 16 introduced in the UK will restrict marketing and promotional efforts
3.0 SWOT Analysis of Sainsbury’s 2018
- The retailers’ strong online sales have become one of its major strengths. 18% of Sainsbury’s sales originate from online sales, this coupled with Argos leading delivery services have given the retailer competitive advantage against competitors (Annual Report 2017).
- The company’s strategic distribution of its channels is its other strength as it gives flexibility to its customers.The strategic channels coupled with a variety of products has given the customers convenience and given the company competitive advantage against competitors (Annual Report 2017).
- Acquisition of Argos has also given the company a competitive advantage in the non-food market. It has also increased the company’s online sales through Argos' strong digital channels and delivery service. Argos’s unique hub and bespoke supply chain coupled with first truck delivery and collection services have also given the supermarket a competitive advantage especially in the changing market.
- Sainsbury only has stores in the United Kingdom which limits its range of customers to the local market and limits business growth. Therefore, in case of uncertainties like inflation, losses or other retailing difficulties in the UK, it will not be able to compensate its loss (Mintel 2017).
- The retailer’s move to everyday low prices has impacted its value perception which has driven its affluent customers away. Customers have lost trust in its product value with the trust ratings falling from 27% in 2016 to 23% in 2017 while its biggest competitor Tesco spotted the highest trust ratings at 45% (Mintel 2017).
- Argos losses are a weakness to the company. The company was acquired in order to increase the profit margins but it is rather consuming Sainsbury’s profits and causing it losses (Mintel 2017a; 2017b).
- The companies declining sales over the last few years. Sainsbury's has experienced a fall in its sales due to a combination of factors including higher inflation that is putting the consumer spending under pressure as well as the steep competition in the food retail sector. The company has experienced a downturn in its operating revenue for the last four years from $40 billion in 2014 to $29billion in 2017 (Hurly 2017).
- UK’s growing obesity which is nearly two thirds (65%) of the population is a major trend for retailers like Sainsbury to embrace .With half of the UK population forecast to be obese by 2050 Sainsbury’s should work on encouraging healthy eating through incorporating more healthy foods in their shelves (Gov.UK 2017).
- The UK aging population is also another trend to embrace. Sainsbury’s should work on winning and retaining this demographic by incorporating product shapes and designs that will attract and retain aging customers as they hold 80% of wealth compared to under 65s (Retail Week 2017).
- The move by the British to leave the EU has resulted into enormous political and eco-nomic turmoils. Following Brexit, the pound plunged to its lowest since 2010 with the resulting weak pound translating into a price hike, which meant consumers were less willing to spend on high prices across many sectors.
- Continued uncertainty around the Brexit is one major trend that has undoubtedly affected consumer confidence thus affecting the retailer. UK inflation which has risen from deep to high inflation fueled by the fall in the pound has eaten into real incomes leaving consumers with less money to spend which has resulted into a shift in the consumer behavior with consumers opting for discounters.
- The growth of hard discounters like Aldi and lidi which offer their products at steeply discounted prices has negatively impacted the company’s profits.
4.0 Sainsbury’s porter’s five forces
4.1 Power of buyers
Sainsbury’s customers have relatively high bargaining power due to availability of other supermarkets like Tesco, Asda, Aldi, WM Morrisons etc. that offer similar products at related costs. This makes product switching costs low, giving customers power to choose between rival offers in the same price range. British shoppers tend to be loyal to price only rather than brands, which is why they are flocking to Aldi and Lidl over the last few years, away from the Big Four (Mintel 2017).
4.2 Power of suppliers
Supermarket suppliers traditionally have low bargaining power due to existence of many suppliers in the supermarket retail industry hence non-compliant suppliers can easily be replaced with other suppliers which gives supermarkets like Sainsbury’s power to get products from suppliers at the lowest possible prices to improve their profit margins which has led to losses on the side of suppliers (Rodionova 2017).
4.3 Threat of entry/Barriers to entry
This is perceived as a low threat by Sainsbury’s because the retail market structure where 69.8% of the grocery market share is controlled by the ‘big four’ supermarkets, there is intense competition between other small supermarkets like Aldi, Lidl, Waitrose, Iceland trying to gain a larger market share which would not give room for a new entrant to prosper. In addition, any new entrant would have to offer very high-quality products at very low prices to attract customers away from low cost leaders Aldi and Lidl that already offer products with up to 40% price discounts vis-à-vis rivals. The intensity of competition has made the UK food retailing market very unattractive at the moment which deters further entry (Hance 2017).
4.4 Threat of substitutes
The threat of substitutes in the grocery market is very high for both grocery and non-grocery items. This is because Sainsbury’s potential food substitutes can come from retailers in other markets that can offer not just food and drinks directly to consumers but also non-food products such as clothing, electronics, furniture etc. For example, these can include department stores, and non-food retailers with both scale and distribution to compete with Sainsbury’s. Such companies include BHS, Primark, House of Fraser, Debenhams etc.
4.5 Competitive rivalry
Sainsbury’s faces intense competition from fellow big four supermarkets like Tesco, Asda, and Morrisons that provide similar products such as food items, clothing, electronics, etc. at a marginally similar cost which makes product switching costs low, hence a buyer can easily switch to other lower prices supermarkets. This had led to cut-throat price wars, intensive product advertisement and product innovation especially among the “Big 4". In addition, Sainsbury’s faces major competition from German discount stores Aldi and Lidl that offer up to 40% discount on their products which has greatly affected Sainsbury’s market share. This has forced Sainsbury’s to try and merge with Asda in order to survive the cutthroat competition in the UK food retailing industry (Eley 2018).
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Mintel (2017b) “Supermarkets - UK - November 2017” Mintel Market Intelligence [Accessed 27 April 2018].
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Rodionova Zlata (2017) “Supermarket suppliers underpaid ‘millions of pounds’ every year by UK’s biggest retailers, says watchdog” The Independent [Online] at https://www.independent.co.uk/news/business/news/supermarket-suppliers-underpaid-millions-pounds-groceries-farmers-groceries-code-adjudicator-a7677831.html [Accessed 27 April 2018]
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