Ratio Analysis Sainsburys Vs Morrisons Finance Essay

When considered as a whole, the grocery market in the UK has steadily growing in size, being about 4 bigger today than it has been a year ago;  August 2012 update: 12 weeks ending July 8, 2012 growth rate slows from 4.2% to 2.1% due mostly to a drop in price inflation: 6.2% to 3.8%. Morrison’s is growing more slowly then Sainsbury’s; the company is on track to add approx. 20 new stores in 2012 with most of those locations featuring a larger selection of produce. The UK grocery market was worth £163.2 billion in 2012, an increase of 3.8% on 2011, IGD forecast that the UK grocery market value will be worth £192.6bn in 2017, an 18.0% increase on 2012. The grocery market’s share accounts for 54.3p in every £1 of UK retail spending.
What is the size of the UK grocery market Source: IGD UK channel forecasts 2012
1.2 The Companies
1.2.1 Sainsbury’s
J Sainsbury plc. is the parent company of Sainsbury’s Supermarkets Ltd, commonly known as Sainsbury’s, the third largest chain of supermarkets in the United Kingdom with a share of the UK supermarket sector of 16.5%. The group also has interests in property and banking. It was founded in 1869 and today operates over 1,000 supermarkets and convenience stores and employs around 150,000 colleagues. It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.

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1.2.2 Morrison’s
The supermarket, which generated sales of £18.1 billion in the year, said it had not done enough to communicate its promotions and suffered because it still lacked a meaningful presence in the two fastest growing sectors of the market. Morrison’s is the UK’s fourth largest food retailer with over 400 stores. The super market is mainly food and grocery – weekly shop. Morrison’s employs 129,000 staff at 498 stores. Their reports show that like-for-like sales dropped 2.1% in the year, while the average of 11.4 million customers in its stores each week was down on the prior year.
2. Gearing Ratio Analysis
2.1 Gearing Ratios
Gearing Ratios (%)
Company/Year
2012
2011
Sainsbury
31.73
30.13
Morrison
22.86
16.25
Source : Appendix 1
Sainsbury’s
A gearing between 25% – 50% is generally considered nominal for an established business. It implies that Sainsbury is happy to finance its activities using borrowing. Sainsbury focuses more on investment in revenue growth rather than profit as the company increased sales revenue and non-current assets but suffered a loss in 2012.
Morrison’s
The business is considered “low gearing” as its gearing is less than 25%. The business is growing through reinvestment of profits and minimizing risk. However, in 2012, there is an increase in gearing from 16.25% in 2011 to 22.86% and this is mainly because the business increased long-term borrowings by £548m and reduced retained earnings and shared capital.
2.2 Interest Cover Ratio
Interest Cover Ratio
Company/Year
2012
2011
Sainsbury
6.04
7.40
Morrsion
20.59
20.62
Source : Appendix 2
Sainsbury’s
The ratio indicates that the borrowing capital is used effectively to generate profits and that the business is able to meet its short-term interest obligations from its earnings. Sainsbury is growing, making worthwhile investments to continue to expand.
Morrison’s
The ratio suggests that Morrison is generating enough income to cover its interest obligations and is thus financially stable. However, such a high ratio also suggests that Morrison is neglecting opportunities to magnify profits through leverage.
3. LIQUIDITY RATIO ANALYSIS
3.1 CURRENT RATIO
COMPANY/YEAR
2011
2012
SAINSBURY
.580
.647
MORRISON
.545
.574
Source : Appendix 3
Sainsbury’s
Sainsbury’s current assets are considerably less than the current liabilities in both the years as Sainsbury has invested a lot in fixed assets as well as in subsidiaries and joint ventures. Sainsbury is obliged to pay a lot of money as a part of tax and also in generating its assets so the liability is therefore more than the assets. For every 1pound liability they have only 64.7 pence worth of asset to cover it.
Morrison’s
Morrison current ratio is smaller than the current ratio of Sainsbury which indicates that Sainsbury is doing slightly better than Morrison in the market. Morrison current liabilities is more than the current assets due to more of borrowing that involves short term loans, investment in fixed assets and payment of tax. For every 1pound liability they have only 57.4 worth of asset to cover it.
3.2 ACID TEST RATIO
COMPANY/YEAR
2011
2012
SAINSBURY
.304
.348
MORRISON
.239
.247
Source : Appendix 4
Sainsbury’s
The acid test ratio is very less as Sainsbury, being a retail store, is highly dependent on sale of inventory. As acid test ratio of Sainsbury is .348 that is less than 1 it means that Sainsbury cannot pay their current liabilities.
Morrison’s
Like Sainsbury’s, Morrison also being highly dependent on inventories, acid ratio is expected to be less. Morrison’s acid ratio is .247, which is less than 1, meaning Morrison cannot pay their current liabilities. It would be only able to generate 24.7 % cash of its current liabilities.
Both the companies fails in extinguishing its current liabilities but this is not due to their market position or growth but just due to the nature of the business (retail).
4. PROFITABILITY RATIO ANALYSIS
4.1 Return on Capital Employed (ROCE)
Return on Capital Employed
Co./Year
2012
2011
Sainsbury’s
10.11 %
11.06 %
Morrison’s
13.83 %
13.70 %
(Source : Appendix 5 )
Sainsbury’s
ROCE growth in 2012 was lower than last year partly due to the cumulative effect of Sainsbury’s accelerated investment in space growth since 2009 (Sainsbury’s, 2011). This initially shrank profits whilst increasing the value of capital employed.
Morrison’s
Morrison’s delivered improved returns to its shareholders. For every £1 capital invested in the business, the annual return is 13.83 pence in 2012 and was 13.70 pence in 2011. This profitability ratio of Morrison is moderately higher than Sainsbury’s, hence Morrison’s is able to gain more profit on average capital employed.
4.2 Return on Equity (ROE)
Return on Equity
Co./Year
2012
2011
Sainsbury’s
10.62 %
11.79 %
Morrison’s
12.78 %
11.66 %
(Source : Appendix 6)
Sainsbury’s
Sainsbury’s Return on Equity in 2012 has decreased by 1.17 % compared to 2011 due to decline in shareholder funds. In 2011, they performed slightly better than Morrison’s as they had better reserves and share capital and the Profit after Tax (PAT) was significantly lower than Morrison’s.
Morrison’s
Morrison’s ROE has significantly improved over d last few years and continue to reach high values. In 2012, they showed a 1.12% increase in ROE compared to 2011 and had a 12.78 % shareholder equity. The shareholders invested a lot which resulted in higher returns.
4.3 Gross Profit Margin
Gross Profit Margin
Co./Year
2012
2011
Sainsbury’s
5.43 %
5.49 %
Morrison’s
6.89 %
6.96 %
(Source : Appendix 7)
Sainsbury’s
A moderate decline in the ratio between 2011 and 2012 explains the fact that the gross profit was lower in relation to sales revenue. This means that cost of sales was higher relative to sales revenue within the period.
Morrison’s
Morrison’s Gross Profit Margin is higher than Sainsbury’s as they had a lower sales revenue and moderate gross profit compared to the latter. In 2012, 6.89 % of the net sales are available to pay off all the operating expenses.
4.4 Net/Operating Profit Margin
Net/Operating Profit Margin
Co./Year
2012
2011
Sainsbury’s
3.74 %
4.07 %
Morrison’s
5.48 %
5.38 %
(Source : Appendix 8)
Sainsbury’s
Sainsbury accounted to lower Net Profit Margin than Morrison’s because of falling sales and rising costs. The market has a lot of competition where small groceries and convenience stores capture quite a bit of total UK food retail.
Morrison’s
Morrison’s performed fairly well and showed significant increase in the operating profits from Sainsbury’s over the past year. It accounted 5.48 % Net Profit Margin in the current financial year (Sales Revenue: £17663m). It is a result of superior execution and induction of higher margin products in their sales mix.
Morrison’s seems to be more profitable than Sainsbury’s across all available profitability measures.
5.0 Efficiency Ratios
(Source of Data, Apendix 9, Financial Reports of Sainsbury’s and Morrison’s)
5.1 Fixed Assets Turnover
This ratio shows how efficiently the company is using fixed assets to generate sales. Low ratios indicate the company is capital intensive or that company requires a lot of fixed assets to generate a given amount of sales. (Gildersleeve, R. (1999) p.136).
Efficiency Ratios
Year/Comp.
Sainsbury’s
Morrison’s
2011
2.40 times
2.18 times
2012
2.39 times
2.22 times
Sainsbury’s
In 2012 Sainsbury’s shows an increase in Sales Revenue for approx 1,100 £m, which made its ratio slightly lower comparing to 2011. The ratio remained fairly similar because the value of fixed assets at net book value increased as well. The reason for the increase in fixed assets could be explained by Sainsbury’s tendency for opening new stores. The financial report states that they opened 19 new supermarkets, 28 extensions, and 73 convenience stores, which are only to begin operating and contributing to sales.
Morrison’s
On the other hand Morrison’s managed to improve their ratio by obtaining similar value of their fixed assets from 2011 to 2012, and using them more efficiently to score an increase in sales revenue of 1,100£m. Generally looking at the industry the Average ratios for Retail – Food companies are between 4-5 (Wal-Mart Stores USA – 5.00), (Gildersleeve, R. (1999) p.136), so Sainsbury’s should aim to increase the use of their fixed assets in order to increase the sales.
5.2 Average Inventories Turnover
Shows how many days company had to stock goods for sale before they were sold. In the retail-food industry this period should be kept fairly low because of the nature of the business. Lower ratio indicates that company will spend less funds towards stocking items before putting it on sale and getting profit from it.
Average Inventories Turnover
Year /Comp.
Sainsbury
Morrison
2011
14.86 Days
15.19 Days
2012
15.85 Days
16.85 Days
Sainsbury’s
Sainsbury’s shows growth in the average of inventories held over the course of year by almost 100 £m. As costs of sales have increased from 2011-2012, this ratio shows a slight growth in number of days goods are kept in stock. The increase of inventory in stock could be explained by Sainsbury’s growth of sales in 2012. Higher demand forces company to have more items in stock in order to satisfy the needs of the customers.
Morrison’s
Morrison’s shows even higher growth in average days the goods are stocked. Morrison’s also note the increase in cost of sales, even more than Sainsbury’s. The financial reports of Morrison’s state a few reasons, among which increasingly higher prices of fuel on the market.
5.3 Profit Per Employee
Profit Per Employee
Year/ Comp.
Sainsbury
Morrison
2011
5,572.78 £ per emp.
6,617.50 £ per emp.
2012
5,256.58 £ per emp.
7,217.60 £ per emp.
Sainsbury’s
It is notable that company’s profit has been reduced from 2011-2012 for 2.8 m£, which is 3.4%, even though its sales have risen for 6.8%. This could be explained by the number of reasons, but one of them that is important for this ratio is that they have also increased the number of employees. This has negatively influenced their Profit per Employee ratio, leaving it behind the industry average and Morrison’s.
Morrison’s
Unlike Sainsbury’s, Morrison’s notes the increase in profit and reduction of number of employees. This is the most desirable situation for a company. Their profit was higher for 8 % in 2012 than in 2011.
5.4 Average Trade Debtor Collection Period
It indicates the period of time which is needed for company to collect trade debts. This ratio reveals a great deal about a company’s credit policy and the efficiency which it can collect money from its customers. (Fight, A. (2006) p. 57)).
Average Trade Debtor Collection Period
Year/Comp.
Sainsbury
Morrison
2011
1.61Days
4.79 Days
2012
1.90 Days
4.34 Days
Sainsbury’s
Sainsbury’s shows an increase in the average time that they needed to collect the trade dept. Even though their costs of sales remained fairly similar, there was a substantial increase in the amount of trade debt. Even though this negatively influenced the ratio, Sainsbury’s has made trades from which they expect to receive money in near future. Furthermore their ratio shows efficiency at collecting debts, comparing both to the industry and Morrison’s.
Morrison’s
Morrison’s have significantly higher average debt collection period. Even though they have managed to slightly decrease their Trade receivables from 2011-2012, their costs of sales increased by approx 1,000£m which has not made it possible for this ratio to improve further.
6. INVESTMENT RATIO ANALYSIS
FORMULAS
* Eearning Per Shares = profit available to shareholders/ no. of shares ranked for dividend
* Dividend Yield= dividend per share/ market price * 100%
*Dividend cover = Preference Dividend/Ordinary Dividend
SAINSBURY’S MORRISON’S
2011 2012 2011 2012
(%) (%)
EARNING PER SHARE
33.8
31.5
23.43
26.03
DIVIDEND YIELD
15.10
16.1
9.60
10.70
DIVIDEND COVER
1.75
1.75
2.40
2.39
6.1 EARNING PER SHARE YEAR
Sainsbury’s
In 2011 Sainsbury’s experienced a sharp increase in earnings per share going up by 33.8%. And in 2012 the Sainsbury went down with 31.5% having a loss of 2.3%. It is important that assets are revaluated in order to keep the real value of assets on balance sheet. Earnings per share in 2011 increased by 2.3% to 33.8 p, reflecting the improvement in the operating profit and the effect of the additional shares, more importantly due to the property profits.
Morrison’s
Morrison’s earnings per share compared to Sainsbury’s are lower. This is driven by smaller profit and the fact that Morrison’s is a smaller sized supermarket chain. The earning per share has 23.43% at 2011 mainly caused by the higher profits on business disposals that the company went through last year, so the return to shareholders was a lower rate per share.
6.2 DIVIDEND YIELD YEAR
Sainsbury’s
The dividend yield had a slightly decreased since the dividend per share only increased by 15.10% from 2011 year. This was a decision from the company and it reflects the reduction in the earning per share already mentioned and the fall in the dividend cover by 1.75% in 2011.
Morrison’s
Morrison dividend yield is much less in 2011 it was 9.6% and in 2012 the dividend went up to 10.70%.
6.3 DIVIDEND COVER YEAR
Sainsbury’s
Dividend cover of Sainsbury’s says that earnings available for dividend cover is 1.75% in 2011 and also in 2012 so there was not change in the divided cover over the past two years. In terms of dividend cover, Sainsbury’s has its policy based on their calculations to maintain the dividend cover between 1.50 – 1.75 times. The reason behind it is that if the dividend cover is too low, there is a possibility that the company will not be able to pay out the investors.
Morrison’s
In Morrison’s divided cover, it showers that in 2011 it has 2.40% whereas in 2012 it has 2.39%, which is still more than Sainsbury. For the year 2011 Morrison’s dividend cover is 2.4 times, claim that it is in line with the European food retail sector average (Morrison’s, 2011).
7. Future Perspectives and Strategies
Both Sainsbury’s and Morrison’s have their business strategies for future outlined in their financial statements. Morrison’s financial strategy continues to deliver improved margins whilst positioning long term growth. They wish to increase their customer appeal and growth of sales, which is meant to be converted into profitable growth.
They have realized the potential in online retail, so they will finally enter the online groceries market to challenge Tesco, Asda and Sainsbury’s, making it the last of the major supermarket groups to have an internet presence, but only after reporting its first fall in profits for six years.C:UsersUSERDesktopfinancial management1.JPG
Sainsbury’s based their business strategy on meeting consumer needs, taking into the account the on-going inflation over the past four years. The economic downturn has changed how and what consumers buy, and these changes appear to be lasting. In 2012 they have launched their Live Well for Less campaign based on awarding loyalty and providing the best quality possible for optimal price. Through Nectar loyalty scheme they have a wealth of data about their customers’ behaviour. C:UsersUSERDesktopfinancial management2.JPG
Source of the table: Morrison’s financial statement 2012.
Source: Sainsbury’s Financial Statement 2012
8 Conclusions
Financial statements suggest that Morrison’s financial performance was very good. They had a profitable year (profit of £58m) while Sainsbury’s performance was not good compared to 2011 (loss of £42m). Morrison’s financial performance was strong, and they continued to invest in long term growth of the business, and to deliver increasing returns to shareholders.
Even after having steady increase in sales revenue and gross profit, Sainsbury suffered loss compared to previous year mainly because their interest and tax expenses increased while profit from joint ventures reduced. Though Sainsbury’s acquisition of non-current assets was underfinanced with long term sources of finance, they still managed to generate more sales and cover the debt payable easily.
Alternatively, Morrison’s financial management was excellent as they covered all their non-current assets with long term sources of finance. High interest cover ratio indicates that there is no sort of pressure on the company and is very profitable.
References
Fight, A (2006) Flow Forecasting, UK: CFrion Tec. Pvt.
Stickney C.P (2010) Financial Accounting : an introduction to concepts methods and uses USA: South Western Cengage Learning
Smart B.S & Megginson W.L (2009) Introduction to Corporate Finance USA: South Western Cengage Learning
Alberth S.W (2011) Accounting, Concepts & Applications, What, Why, How of Accounting USA: South Western Cengage Learning
Gildersleeve R. (1999) Winning Business: How to use Financial Analysis and Benchmarks to outscore your competition Houston: Tex Gult Pub. Co.
Unknown (2010) An evaluation of the business and financial performance of morrisons. Available at: http://www.ukessays.com/dissertations/business/financial-performance-of-morrisons.php#ixzz2NhjC0HdW (Accessed: 15/03/2013)
London Stock Exchange (2013) London Stock Exchange Available at: www.londonstockexchange.com (Accessed: 20/03/2013)
Morrison Group (2013) Financial Reports Available at: http://www.morrisons.co.uk/Corporate/Investor-centre/Financial-reports/ (Accessed: 18/03/2013)
Sainsbury’s Group (2013) Annual Report and Financial Statements 2011 Available At: http://www.j-sainsbury.co.uk/ar11/ (Accessed: 10/03/2013)
Unknown (2013) Forces analyses of Sainsbury Available at: http://www.oxbridgewriters.com/essays/management/forces-analyses-of-sainsbury.php (Accessed at: 18/03/2013)
Appendix 1
Gearing Ratio = Long Term Loans + Value of Preference Shares
————————————————————————————–
Share Capital + Reserves + Long term Loans + Minority Interest
Sainsbury’s
2012
2011
2617 + 0
538 + 5091 + 2617 + 0
2339 + 0
535 + 4889 + 2339 + 0
= 31.73 %
= 30.13 %
Morrison’s
2012
2011
1600 + 0
253 + 5144 + 1600 + 0
1052 + 0
266 + 5154 + 1052 + 0
= 22.86 %
= 16.25 %
Appendix 2
Interest Cover Ratio = Profit before interest and tax
———————————–
Interest payable
Sainsbury
2012
2011
834
138
859
116
= 6.04
= 7.40
Morrison
2012
2011
968
47
887
43
= 20.59
= 20.62
Appendix 3
Current ratio = current assets / current liabilities
Sainsbury’s
2011
2012
Current assets = 1708
Current liabilities = 2942
Current ratio = 1708/2942
= .580
Current assets = 2032
Current liabilities = 3136
Current ratio = 2032/3136
= .647
Morrison’s
2011
2012
current assets = 1138
current liabilities = 2086
current ratio = 1138/2086
= .545
Current assets = 1322
current liabilities = 2303
current ratio = 1322/2303
= .574
Appendix 4
Acid test ratio = liquid asset / current liabilities
Liquid asset = current asset – inventories
2011
2012
Current assets = 1708
inventories = 812
liquid asset = 1708 – 812
= 896
current liabilities = 2942
acid test ratio = 896 / 2942
= .304
Current assets = 2032
inventories = 938
liquid asset = 2032 – 938
= 1094
current liabilities = 3136
acid test ratio = 1094 / 3136
= .348
Sainsbury’s
Morrison’s
2011
2012
current assets = 1138
inventories = 638
liquid asset = 1138 – 638
= 500
current liabilities = 2086
acid test ratio = 500 / 2086
= .239
current assets = 1322
inventories = 759
liquid asset = 1322 – 759
= 569
current liabilities = 2703
acid test ratio = 569 / 2703
= .247
Appendix 5
Return on Capital Employed (ROCE)
ROCE =
For Sainsbury’s
2012
2011
834 X 100
538 + 5091 + 2617 + 0
859 X 100
535 + 4889 + 2339 + 0
= 10.11 %
= 11.06 %
For Morrison’s
2012
2011
968 X 100
253 + 5144 + 1600 + 0
887 X 100
266 + 5154 + 1643 + 0
= 13.83 %
= 13.70 %
Appendix 6
Return on Equity ( ROE ) = Profit after Tax X 100
Share Capital + Reserves
For Sainsbury’s
2012
2011
598 X 100
538 + 5091
640 X 100
535 + 4889
= 10.62 %
= 11.79 %
For Morrison’s
2012
2011
690 X 100
253 + 5144
632 X 100
266 + 5154
= 12.78 %
= 11.66 %
Appendix 7
Gross Profit Margin = Gross Profit X 100
Sales Revenue
For Sainsbury’s
2012
2011
1211 X 100
22294
1160 X 100
21102
= 5.43 %
= 5.49 %
For Morrison’s
2012
2011
1217 X 100
17663
1148 X 100
16479
= 6.89 %
= 6.96 %
 

Sainsburys: Strategies for Customer Retention

CHAPTER (1)
Abstract
My research paper basically seeks to understand the priorities of customer in Sainsbury of selection of products while shopping. And Sainsbury’s efforts to work on their new products with maintenance of their class and reasonable value to give best services to their loyal customers. My research also seeks to highlight the consumer behaviour which makes them to keep visiting Sainsbury’s. UK retail market is the best example of competitive market.
Research need to understand the product class which leads to quality of product and categorization of products, secondly the product value which shows pricing with different aspects in the UK market and specially in Sainsbury’s. And I am also going to research about the failure strategies of the Sainsbury’s.
I will conduct this research by the one to one interview with the senior manager of Sainsbury’s as well as there would be a deep research which will be taken out from the questionnaire with the customer of Sainsbury’s. Basically the interview will give me the basic line of action of the marketing strategy of the new product of Sainsbury’s and also it will identify the different products class and with their different values. Questionnaire from the customer will highlight the requirements and basic theme of the consumer that what they think, what they plan and how they choose.
I shall also discuss the last two years of the Sainsbury’s progresses about the products because in past two year Sainsbury has improved their activities under the new management.
Introduction
United Kingdom is one of the most fast growing markets in fast moving consumer goods in the world. Market opportunities are comparatively very better than the other countries. Resources and legal GOVT. policies are very helpful for the new entrants in the retail market even though the UK five hundred retailers are enjoying about 85 percent of the whole market and rest of 215000 retailers are struggling for remaining market shares. And this trend or market competition encourages or forces the retailers to focus only the customer needs. This trend gives the opportunity to big retailers to make the huge supermarkets. That all the fast moving products include food and noon food item, home appliances and much more under the same roof to fulfil the customer needs and these supermarkets proved more convenience for the consumers.

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In early 19 century in UK, the retail market had different shape which calls co-operative movement where the multiple retailer or group of retailers comes under one management for working together to sell their products in reason able price to their customers. This trend of co-operative movement started in UK by Rochdale, Lancashire in 1840 and later in north of England’s retailers. But this merging was only for the customers who purchased the products in bulk. After Second World War when the economy of United Kingdom was rebuilding, that was the perfect time for the investors to invest in the different fields of business and retailers also made their positions. Like after four year of war end Marks & Spencer opened their first supermarket in 1948 then Sainsbury’s opened in 1950, Tesco opened their first self service store in 1954, Morison opened 1958 and ASDA opened first supermarket in 1963. The era of 1960, 70s, 80s was the time of expansion of these giants who later opened their supermarket with different sizes in all over the places in UK, made their stores more convenience and gave more reliable services to their customers. In today’s fast paced life nobody has time to go at individual shops for all the household needs and supermarkets has fulfilled this deficiency by providing their target market all the products i.e., from grocery to personal care, and from children items to medicines and electronics, furniture, fresh items, meat, etc. etc. The availability of all these items under one roof has various attractions which encourage a customer to visit in supermarkets.
(www.tescopoly.org)
(Raphael Moreau: franchiseek.com)
Supermarkets have one major advantage that customer come mentally prepared to make heavy shopping i.e., at least the stock of one week household items so that he / she do not have to come again and again for small items. As London is one of most populated city in the world and day-to-day expenses needs to be made by everyone, in this way supermarkets are able to make large volume of sales. Due to large scale of purchasing supermarkets are able to make different offers especially on the frequently moving items like snacks, cheese, drinks, chocolates, bakery items, beers, wine, vegetables, fruits, meat, etc. etc. In this way consumers are tempted to make forced selling. Due to large sales volume the selling costs goes down which in turn enhances the profits of the supermarkets.
(Grahame Dowling: Buying Behaviour)
At the start of 2007 the UK retail market was worth about 128.2 billion with the comprehensive increase of 4 percent after 2006. End of 2007 that was reported that there are about 99, 134 retail stores in the United Kingdom which contain the small stores like Spar or Londies and also include the supermarkets like Tesco, Sainsbury etc. These all stores, grocers and supermarkets are expanding their businesses widely as their target market is expanding which made the UK market best example of perfect competitive market.
(www.igd.com)
UK retail Market Growth
UK Grocery Market Performance
(Source: IGD Research 2007)
As discussed about the supermarkets and different retailers it shows that the customers of UK have wide range of option of selection. In order to evaluate the customer selection of product is the firm it should mostly refer to the traditional forms of marketing as they can be observed in most companies internationally. In this context, the study of Aufreiter et al. (2000) showed that when traditional marketers think of organization, they mean structure: distinct product, channel, and customer groups focusing on specific functional tasks, such as brand differentiation, customer segment management, and market research while functional managers play the pivotal roles in these functionally focused customer groups, which are responsible for generating ideas and taking them to market.
(Aufreiter, N., Lawyer, T., Lun, C. (2000)
In a sense, customer selection of product is formulated in each case in accordance with the needs of the particular company but most importantly with the conditions of the market. The term of focusing the product is often used in this case to show the involvement of entrepreneur in the design and the application process of the customer satisfaction of specific product and the main targets of the marketing policies used by a specific organization. In this context, Welsh (2003) supported that this term can be defined as “the proactive identification and exploitation of opportunities for attracting and retaining customers through innovative approaches to risk management, resource leveraging and value creation” (Welsh, 2003, 5). On the other hand, it is necessary that firms internationally use the appropriate techniques of communication in accordance with the social and cultural conditions of the market involved. Regarding this issue, the study of Dobie et al. (2003) showed that “marketing communications are an important element of any product as it is essential to inform potential and existing customers regarding product/service availability and application, and to persuade potential users to investigate, examine, and/or try the proffered product/ service”.
(Dobie, K., Grant, J., Megehee, C. (2003).
After reviewing the different views of customer selection one could easily notify that in UK where about 10 percent of the whole country is not native can be a complicated market where the product selection can be different and these people have to cover by supermarkets to attract them by their native products with concern food and grocery products. And this objective forces them to make new product lines in their stores.
As I mentioned about the trend of supermarket in the UK and further on the three top supermarkets are following:

Tesco
ASDA
Sainsburys

This is the recent research that Tesco has 31.5 percent of whole UK retail market share further on ASDA who has 16.7 percent as well as Sainsbury who covered the 16.3 percent market share. In 1980s and early 90s Sainsbury had the leadership of UK market how ever in 1995 Tesco leads with 17 percent market share with rapidly increasing following years. But from past two years when the Sainsbury comes under new management with Justin King they increased well and fortune is this that could compete their rival ASDA and could regain on number two position in UK retail market. Sainsbury’s management is now improving under the new managerial structure and introducing the wide range of production their stores with different class and value. They increased their organic range and new lines of something new which also include the food items which concern their other countries customers who are living in UK.
(news.bbc.co.uk)
In 2005 Sainsbury also changed their slogan “try something new today” to introduce their wide range of new products to their loyal customers. As the Sainsbury is the UK third largest supermarket has increased its like to like sale from last two years. And this method encourages them to deliver large number of products in their stores which is a challenge and if they can’t do so they can lower their growth rate as per their other competitors who are increasing significantly. Sainsbury also increased their non food products in the stores. They want to entertain their customer with their new product line including food and non food products. But the challenge is if their other rivals like ASDA and Tesco don’t slope down their non food products offers it can be a big lose for Sainsbury. Sainsbury who has about 2.2 billion turnover per year has the fortune to increase it to 3.5 billion by 2011. Sainsbury also have smaller stores then Tesco and ASDA which they are planning to increase their stores next year as well as likely to increase the senior management of their stores. As we know Sainsbury has the massive 136 years history in the UK market even though some of the time likes 1995 when Tesco increased its market share till now which is incredible effort of Tesco. But from last two years as under new management they increased their number of stores with their new products.
(The telegraph: 27/03/2008)
Sainsbury’s supermarket chain is increasing their new product lines to fulfil the consumer requirement more customers are also making their shopping trend toward Sainsbury. Sainsbury is also managing the price strategy to maintain their sustainability in the market where there other rivals like Tesco and ASDA have vast pricing strategies. New offers are flourishing rapidly in Sainsbury. As I mentioned that UK customer have large number of selection which gives customer freedom of choice that’s make Sainsbury to do more efforts. Sainsbury categorize their products with different ideas, thoughts and according to needs of consumer. I will discuss about it in next chapter but some are following with there basic themes.

Taste the difference
Be good yourself
Basic
organic
Non food items

These all Sainsbury’s categorize food products give the different consumers to different priorities like if we talk about the “taste the difference” products it covers those customers who come to Sainsbury to buy the quality products with the reasonable price. Second is “be good yourself” which always keep remember their customer that they are eating low fat food which makes them more healthy and specially those customer who are diet conscious. Third Sainsbury has a wide range of own manufactured brand called Basic which is key area of the Sainsbury turnover. In basic products they promise their customer to give them good products in very low price as per other supermarkets doing. Forth Sainsbury has organic products which give the opportunity to their consumers to buy the products which are total artificial ingredients free. And Sainsbury has introduced organic products in the UK market first in 1985 and latter other retailers got fruit from this product plan.
(The telegraph: 11/01/2008)
(www.j-sainsburys.co.uk)
It is recently been announced by UK retail supermarket giant Sainsbury’s that their profit increased to 488 million pounds at 2007 which is 28 percent increased form last year. The declaration comes just a day after price rises leapt to three per cent, partly fuelled by improving grocery products prices. Chairman Philip Hampton said: “This year has been mainly important for Sainsbury’s since it marked the achievement of the ‘Making Sainsbury’s Great Again’ revival plan represent in October 2004 and we stimulated from a period of improvement to development.” Last financial year Sainsbury’s also take over their target 2.5 billion to 2.7 billion. As for the competitive prices Sainsbury also increase their number of customer visit from 14 million to 16.5 million. And Sainsbury’s also going to distribute around 47 million pounds to their colleague this year which will come average 401 pounds to every worker.
(The Metro UK, May 14th 2008)
CHAPTER (2)
History of Sainsbury’s
The early years (1869-1940)
Mr. John James and Marry Ann Sainsbury was the founder of Sainsbury’s in 1869. The first shop they open in London at “Drury Lane”. It was the small dairy shop as well as the area where they open the shop was the poorest area but this shop becomes very popular in the local area as their high quality product in very low price as compared to others. This success encourages Sainsbury’s owners to open more shops in surrounding areas. In 1882 this short period James Sainsbury’s had four shops and also he was planning to expand his business in other areas. On the meanwhile they also made their own brand product. Sainsbury’s also opened its wide range products shop in Croydon which become familiar in very short period. Furthermore in 1890 and 1900 the Sainsbury’s branches increased from 16 to 48 in all over London as well they open the depot at Black friars which was near to wholesale markets.
Era of World War I
The world was 1 led the Sainsbury to face the shortage of staff. in 1914 one third of the male staff left to join the armed forces. Women replace the men after getting the training from the school at Blackfriars. Company started to expand during the inter war era. Sainsbury’s expended in the suburbs of London like Luton, Cambridge, and St Albans. in 1939 there were 244 shops in the UK.
Post War Era (1939-1969)
This era was the most difficult for the Sainsbury’s as its assets were badly damaged by bombing and few of them were used by the army as warehouse. This era was not only hard for the Sainsbury’s but for the British people. The acute shortage of food in June 1950 Sainsbury’s reopened its first store in Corydon from there Sainsbury’s started to boom again. In 1969s Sainsbury’s started to expand in the west and Midlands.
Sainsbury’s: Contemporary Image (1979-2000s)
After the world war two, Sainsbury enter a new era of prosperity and growth till then the Sainsbury’s completed its age of a century. And it was still owned by the founding family. One of the major problem faces by the company in early 1970s was the shortage of oil due to which the cost increased many faults. The increase cost was overcome with the help of bulk merchandizing decreasing per unit cost. The largest stores like one in Cambridge which was opened in1974 offered a wide Varity of product range. It further started to expand in north east England, Scotland, Wales and Northern Ireland. Thus becoming a national symbol. Sainsbury’s innovated a lot of techniques and styles of retailing using various tools and technology like scanning, computerized stock control and sale base ordering system. Sainsbury’s was the pioneer which gave a new face to the retailing system for example by using computerizes, energy management, refrigerate plant in store bakery, chillers and freezers. The product ranges got twice till 1994 representing the numerous range of product like produce fresh foods, salads, ready meals, reduced fat milk and different types of specially breads. Sainsbury’s was the first British market to mark the “fair trade” products and using the recycle martial for the paper products and the carrier bags.
The profitability measures of Sainsbury are 1991 – 2002:
Sainsbury Profitability ratios
1991
1992
2000
2001
2002
Total operating profit margin
5.10%
4.85%
3.74%
3.41%
3.72%
Group profit before tax margin
4.70%
4.62%
3.33%
2.98%
3.44%
Interest payable as a percentage of turnover
0.50%
0.31%
0.41%
0.41%
0.27%
Source: http://www.bized.co.uk/compfact/ratios/profit_add6a.htm
Sainsbury’s maintained the profits in the years 2000 to 2002. In 1998 – 1999, the profits were better than year 2000. The shows that the profit slump is noticeable and was due to the management failure and high competition.
Source: http://www.bized.co.uk/compfact/ratios/profit_add6a.htm
Clear form the chart that Sainsbury’s lost its profit sharing in the year 2001 and 2002 and it discontinued many operations and it earned the minimum profit in the year 2002 which started to decline from the year 1998.
Today Sainsbury serves more than 16 million customers each week. it has 455 supermarkets and 301 convenience stores across UK. More then 148000 people work under the umbrella of Sainsbury’s. Sainsbury’s strongly believes in high quality products and low price. Following that Sainsbury’s decrease 8500 prices in 2006. Keeping in view the advanced customer concerns about the health (health conscious customers). It introduced the “Wheel of health” following the traffic light system, highlighted the ingredients and calories presented to customer. These days more then 2000 products has been labelled by the wheel of health.
Sainsbury’s also contributes in charities and local community as well. It donated 70 million pounds to all primary and secondary schools with the help of its “active kids campaign” using the fair trade products as a priority projects its image as the strong supporter of poor deserving farmers through out he world. In2005 and 2006 Sainsbury’s staff donated around 9 million pounds in several of charities. Sainsbury’s also support the comic relief and sorts relief. Sainsbury is also committed towards the environment and does not support the use of plastic carrier bags, which are made of 33 percent recycle martial processed in most advanced recycling units. Sainsbury’s has lunched a lot of campaign to reuse the plastic bags. Such sort of activities has reduced the carbon emission by 20 percent since the year 2000.
At 14 May 2008 announcing the results of last financial year 2007 Justin King Chief Executive said “since then we have grown sales by 2.7 billion pounds, betting the target of 2.5 billion we said ourselves, and in march we reported our 13th consecutive quarter of like for like growth. I am also pleased to be able to let you know that, we have reported an increase in profit of 28 percent, up to 488 million pounds for the year ending 22 March 2008, more then double the 238 million pounds we reported for the year ending March 2005”.
Research Question
What makes the customers to opt the products in terms of class or value in the Sainsbury’s?
This research will provide the essential key points of customer selection of products in terms of quality and price in Sainsbury’s.
Aims and Objectives
The main aims and objectives of this research project are to:

Analyze the customer priorities by quality, price and quantity while shopping in Sainsbury’s.
Find the purpose of range of products in Sainsbury in terms of quality and price.
Prices of the product as per other competitors.
Marketing strategy of Sainsbury’s for their new products with different prices.
Purpose of product categorization in Sainsbury’s.
Critically evaluate and make out the upgrading which could be introduced into Sainsbury’s based on the price and quality.
Scrutinize the past activities to identify the areas of failure of their products by price and quality.

Personal Objectives
My personal objectives are:

To get aware from leading supermarket’s marketing strategy for their range of products and boost my international marketing edge.
Secondly to complete my subject and go further for my MBA degree.

CHAPTER (3)
Literature Review
Promotion
The retailers having more items and products meeting the customer needs and information called as full service retailers covering every phase of the market segment and Operating such type of retailer service not to be an easy job to be done. Due to the high cost of staffing, higher number of goods including the fast moving consumer goods (FMCG) and slower moving items. Therefore the resulting of towering cost of the business. Hence the promotion of the product of such type of retailer like Sainsbury’s is highly debatable so as to increase the sale and profit margin. The marketing promotion can not be neglected. In this phase of increase competition, adopting such strategies can easily make a difference. A retailer’s most important decision depends upon the target market. One has to define and profile the target market before taking any decision. The retailer especially like the Sainsbury’s emphasises on the product assortment and procurement to comply with the target market demand. Challenge of the product assortment leads to develop a product differentiation strategy which differentiates the seller or retailer or merchandiser from the competitors on behalf of product. Seven known possibilities of the product differentiation strategy are

Exclusive national brand
private branded merchandise
Distinctive merchandise events
Surprise merchandise
New merchandise first
Merchandize customizing service
Highly targeting assortment

Although Sainsbury’s does not fall in all of such category and has not still adopted but the strategies like private branded merchandize, newest merchandise and targeted assortment have effectively been adopted. Sainsbury can make a difference by product differentiation such as offer merchandise which has been successfully introduce by Harrods’s of London which makes customer oriented/tailored suits and further clothe accessories. Such type of customer assistance increases the customer satisfaction as well as customer confidence. Retailers like Sainsbury Tesco, ASDA Morison are improving there efficiency by forecasting and merchandizing for stock control, space allocation and display. For ordering the goods, measuring the inventory and analyzing the sales. The supermarket chains have adopted there computers and scanners to manage there merchandize mix. Direct product profitability (DPP) is currently being used to measure the cost of the product in store from the point of arrival till a customer buys it. Low volume products have normally low handling and keeping cost as compare to the high volume products which have high handling cost and therefore are less profitable. Thus they are kept in a low volume normally. This strategy has been successfully by the Sainsbury’s by keeping the more number of groceries and a less number of home ware items therefore Sainsbury makes a profit margin from the FMCG products.
(Philip Kotler, Millennium Ed )
Sainsbury supply chain
The supply chain strategy of Sainsbury was lunched in autumn 2000. The supply chain strategy if Sainsbury is focused on managing all segments starting from logistics and distribution to the shelf of the store. The goal of the Sainsbury’s supply chain strategy in base on the following few principles:

Paper less
Stockless
Simple
Automatic
Precise and accurate

Sainsbury emphasize at improved performance via reducing the cost improving the accessibility and availability, minimum loss and maximum level of services. Development of such innovative processes is developing to provide most effective and efficient service with least cost, thus delivering the reduced cost and profit to the customer in aspect of price. Sainsbury’s replaced all of the warehouse management and data base management over a 3 year period time since year 2000.
(www.sainsburys.co.uk)
J Sainsbury chief executive Justin King announced the “Recovery to growth” at 14th may 2008. He said “…we have already celebrated our success in growing our sales by 2.5 billion pounds but today we confirmed that we have achieved all of the target we set ourselves in our three year recovery plan. Looking to the future: we now need to continue this success so that we can achieve our new three year target, which we set out last May, of an extra 3.5 billion pounds of sales by March 2011. this is the next part of our, `Making Sainsbury Great Again plan,` where we will be focusing on moving from recovery to growth. Its another challenging target but I am confident that we will achieve it. We will continue to concentrate on the things that have helped us succeeded so far- great service and great availability to drive great sales. We will also continue to carefully manage our costs, so we can increase our profit. Store development will also be big focus for us, with our half of our stores undergoing works and opening the hundred new convenience stores over the next three years. We will also be expanding our online operations to two hundred our stores.” By March 2008 Sainsbury achieved 2.7 billion extra sales over the original target of 2.5 billion.
(The Telegraph, May 18th 2008)
He also declared 45 million pound to be distributed as bonus among 118000 colleagues this June. It is very clear statement of Justin King that the key to success is the great service and great availability which proved Sainsbury’s great again. Great service includes the customer service after sale services and customer convenience in the stores. Where as great availability covers the availability all of the products at all time making successful the supply chain of the Sainsbury’s. The higher sales are result of supply improvement since 2005. Sainsbury’s has been focusing to improve the stock availabilities by resolving information technology issues and delivery problems which was affected by its bad supply chain earlier. In 2005 the sales increased 3.7 percent which latter on lifted up to 7.2 percent in late 2005. Justin King said “our major focus on availability in beginning to show results with both colleagues and customer noticing improvement in store”. Justin King always emphasizes on the availability in any aspect starting from improving themselves in terms of refurbishment and colleagues training.
(www.bbc.co.uk)
Supply Something New -Value and Quality
For the very begging Sainsbury has been struggling to provide the customer satisfaction via quality and price. Sainsbury has adopted a number of strategies regarding the concern for example Taste The Difference, Be Good Your Self, Basic, Organic, special offers like Buy One Get One Free, Buy Four Cheapest Free, Multi buy Price Offer, Buy One Get One Half Price and many more. Sainsbury does not only keep the concern with the customer but with the supplier as well. Sainsbury launched its new plan regarding the innovation in retail industry by introducing the supply something new scheme. Scheme was offered from 21 SEP 2007 and is offered to all sized food supplier. Scheme encourages the suppliers to offer the best they can offer to be shelved in Sainsbury’s. Kelly’s of Cornwall, Danby Dale Pie Company, Jack Scaife Bacon and Honey Buns have been recently added on the list of Sainsbury’s products. The process is quick and reliable and takes only three months to complete. The successful applicants are approached by the supply chain team to transport the product from producer to stores. The scheme has only been offered to small and medium size manufacturing companies so as to offer a minimal price to the end user depending upon the level of productivity of the producer for example cranberry, flap jack, and plain vanilla flap jack are offered at the price 2.59 pound and 3.39 pounds respectively. The scheme does not only reflects the innovative thought of the producer but the user himself because the scheme is valid for small and medium base firm only and it is only the buyer or journal customer/user who operates at such level.
(http://www.supplysomethingnew.co.uk/index.asp?pageid=11)
Sainsbury’s and Fare trade
The fair trade label was first defined four decades ago in 1988 by Max Havelarr used for a coffee from Mexico. Basically fair trade is a strategy develops to minimize the poverty and growth for the developing and under developing countries. The fair trade was specially design for such formers who lake the access the world market possessing improved trade benefits. Sainsbury is the UK biggest fair trade retailer. The fair trade certify products are those which are bought from the marginalised small scale farmers and agricultural workers, keeping a non fixed minimum price that a buyer has to pay to the seller. It is the set price which covers the cost of the product. The fair trade price has the safety advantage to the farmers even if the price of the product falls below the market level. On the other hand if the market price higher then the fair trade prices the buyer has to pay the market price. Through this fair trade the buyers and sellers sign the long term trading relationship for a specific predefine grades of produce. The fair trade law tells the end user advantage of the usage of the product and helps in effective promotion and identification of deserving quality products. Sales of Fair-trade certified products in the UK
Estimated UK retail sales by value 1998-2007 (£ million)
 
Estimated percentage increases from 2006-2007

Total sales: 127% increase by volume and 72% by estimated retail value
Total coffee: 33% increase by volume and 24% by estimated retail value
Total tea: 21% increase by volume and 24% by estimated retail value
Wine: 47% increase by volume and 51% by estimated retail value
Flowers: 71% increase by volume and 72% by estimated retail value
Cotton: 1,655% increase by volume and 658% by estimated retail value

The volume of the fair trade products has been doubled between year 2006 and 2007. according to the data, consumers spent 1.1 billion pounds on fair trade products in 2006.
As an average Sainsbury’s sales around 10,00,000 fare trade bananas. Justin King said, “by working together on this scale, the new fund will help to dramatically extend the benefits fare trade create to more farmers and worker in new areas, which have previously note been fait trade accredited”. Sainsbury has a land mark to converte all of his bananas to fair trade in July 2007. According to the s Sainsbury’s sells 1000 bananas a minute, 150 thousand a week and 700 million bananas a year and all of the bananas are fair trade. The sale of bananas have been increased by 5 percent (approximately 35 million bananas) since the Sainsbury’s has jumped to 100 percent fare trade bananas.
 

Sainsburys Company Analysis

The food retailing Industry is a huge and fast growing industry in UK .It is a complex and diverse market dominated by various big companies such as Tesco, ASDA, J Sainsbury’s. Price and quality of goods are the two key elements which the companies keep in mind to increase their sales and defend their position in this competitive market. In the year 2009, food retailing recorded sales figures of GBP 297,478.9 million, along with providing employment to 11.6% of the workforce in UK (Euro monitor). It is forecasted, by the year 2014 the sales would cross GBP 350,000 million. (Euro monitor)
This assignment focuses on the third largest food retailer store in UK, i.e. J Sainsbury.
Sainsbury is a super market which will operates its business in retail sector from the year
1869. Sainsbury is started by James and Mary Ann Sainsbury’s. Sainsbury today operates a total of 827 stores comprising 537 supermarkets and 335 convenience stores(J Sainsbury 2010) .With their presence in various other markets such as financial services and Property management, grocery retailing remains their core business. In an industry which employs over 3,335,000 people and with sales figure of GBP 137,590 million (Euro Monitor), Sainsbury enjoys a market share of 16% and serving 19 million customers weekly with a product offering of 30,000. (J Sainsbury 2010)
QUESTION-1 Using suitable models identify the customer perceived value for the customers for a product/division/company of your choice.
ANSWER-
PART 1
Customer value
Difference between what a customers gets from a product, and what he or she has to give in order to get it.
http://www.businessdictionary.com/definition/customer-value.html#ixzz16OyFiRFr
Customer value proposition
A business or marketing statement that summarizes why a consumer should buy a product or use a service. This statement should convince a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings.
http://www.investopedia.com/terms/v/valueproposition.asp
Types of CVP
1. All Benefits- benefits that an organization brings to its target customers. It tends to suffer from a lack of credibility when the value proposition is not distinguished from competitors or focused precisely on the unique needs of the customer.
2. Favourable Points of Differentiation- it mainly emphasizes the key differences between a firm’s offerings and those of competitors at the customer interface. It takes into account the notion that the buyer has substitutes. Like the all benefits value proposition it lacks specificity relative to the buyer.
3. Resonating Focus- Resonating focus highlights one or two critical differences between the firm’s offerings and those of competitors with the forethought that these differences represent those areas that are most vital in the mind of the customer. While most effective, this value proposition takes considerable time to develop as it is strongly rooted in a deep understanding of customer needs.
http://www.edbarrows.com/Resources/briefs/valueProposition.pdf
IMPORTANCE OF CUSTOMER VALUE
 A good customer value proposition is a technique why a customer should buy a product and also distinguish your product from competitors. Gaining a customers’ attention will help in growing sales faster and more profitable, as well as increasing its market share. Understanding customer needs is important because it helps promote the product. A brand is the perception of a product or service that is designed to stay in the minds of targeted consumers. It is desirable to build a strong and positive brand association with your offering.
Three key dimensions:
Extrinsic vs. intrinsic value
Self-orientated vs. other-orientated value
Active vs. reactive value
PART 2
VALUE PROPOSITION FOR SAINSBURY
Sainsbury maintain high quality of its services by keeping up high quality product at a fair price, through well-kept rooms with an attractive appearance to fast service and a friendly staff. Sainsbury ensures that all suppliers have been evaluated by Quality Attribute System (QAS) in order to provide quality product to the customer. It has different prices which are suited to different kinds of customer. Through the execution of high quality product Sainsbury has high price. However to adjust to the needs of less wealthy clients it also offers a wide selection of basic product at a low price. Sainsbury speed is moderately-high. Sainsbury team is trying to reduce queues through recent introduction of basket tills, self-checkouts as well as introduction of newest scan and pack system. Sainsbury also offers home delivery which can be obtained the very next day. Dependability is keeping a word to customers. Sainsbury provides customers’ quality product at a fair prices, fulfilling customer expectation for fresh, safe, healthy and tasty food. Sainsbury respects environment by using environmentally friendly packaging. Queuing time is reasonable and deliveries are on time. Online Shopping at Sainsbury’s is also a great advantage. All the above provide a high level of dependability and are the reason why the Sainsbury’s brand remains on the market for 141 years, and this makes the Sainsbury differs from its competitors.
Sainsbury started a new range ‘taste the difference’ that aims to provide consumers desire to treat themselves at home, rather than spending money in buying expensive takeaways or eating outside.
Sainsbury’s continuously investing in their clothing and home decor items to accelerate the growth in non-food sector so that they can reach to more customers so as to increase its market share and sales. (Euro monitor)
Sainsbury’s continued launching innovate products, 1% fat milk was launched which was consumed by 2.5 million households due to which its sales for basics were up by 60%. (Euro monitor)
QUESTION 2
Critically evaluating value proposition of Sainsbury’s
VALUE PROPOSITION
Sainsbury supermarkets follow the mission of being the customer’s first choice by its service and quality. Through the method of working simpler, together and faster it delivers an outstanding good service and quality. Sainsbury accelerating its growth in non-food sector so as to reach more customers. Online facility provides its customers to shop online for non-food items also. The company has a solid brand value although discriminating competitive advantage is clearly missing. It is difficult to slot them in a particular category from a customer point of view. The company is not able to create a good market which will make them distinguish from other supermarkets with concerns to price, quality, customer service and access to variety or inventory.

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Sainsbury’s was critised by the city for allowing Tesco in getting ahead in the market in terms of customer service, loyalty and price competitiveness. Sainsbury’s was also criminated for not promoting itself up to its standards and also running the same type of initiatives which was running by Tesco. So the Sainsbury has failed to promote its products and services. In the process to reconstruct its mission, company has changed its marketing strategy and sold successfully the home based products in the chain of UK market and its business in Egypt. This changes the company to focus on food retailing and related activities.
Sainsbury maintains 100% service level as the online business is growing rapidly. Even so, there are some issue that need to be developed for example; delivering orders in full and on time. The online business is developing at a rapid speed gaining growth in overall market. During hectic periods picking large orders from stores could become an issue.
(http://www.oracle.com/us/corporate/analystreports/corporate/ovum-sainsbury-cs-170835.pdf)
MARKETING MIX
The marketing mix used by Sainsbury to gain its competitive advantage in its retailing sector -.
Product –
Sainsbury’s mainly focused in developing new product and its food quality which will be healthier to the customers. It provides more than 350 variety range of foods product which is produced to protect its natural flavour and taste of the product. Currently it has achieved to developed more than 600 organic lines to provide best range of food and major growth in groceries, bakery, and frozen foods. It has also launched a product called ‘Blue carrot Calf’ known for the clear labelling of kid products which mention clear details of the products. The Sainsbury’s continuously concentrating on development of its product by launching a new programme every year.
Price –
Price is the important component of the marketing mix for Sainsbury’s. Now a day Sainsbury’s is presenting its customers in UK the value for money. A lot of investment is made in improving quality and productivity in order to reduce the overall cost. For the customers in UK Sainsbury is offering, exceptional value for the money and the aim of the company is to lead the quality and become the favoured in term for the customers all through the market. If the price is cut it is not easy to get back again to the previous level without dissatisfying the customer. This is not decent for the business. Hence in short term price gain the store will be less affected where as in long term it would gain less positive. Sainsbury implemented a new strategy ‘value for money’ after realising its price war in the market. A lot of investment is made in improving quality and productivity what it provides and efficiency of its activity in order to reduce the overall cost. The purpose of implementing a new strategy is to achieve trust and value from the customer and continue its leadership.
Promotion - 
Sainsbury gain to build up its solid brand image among the customers through various promotions. It mainly focuses on its own brand rather than the promoting other brands which they sell in the stores to form the greater wealth by its overall retail brand.
Sainsbury uses different media for its promotion whereas TV, radio and advertising in cinemas to grow the company image. Sales promotions, merchandising and packing are also the key element for the promotion of the Sainsbury.
Sainsbury launched ‘Nectar Card’ as a main weapon for its promotion. This card is free for customers and gives discount points if customer used it in store at the time of shopping. Many other retailers are also using same type of promotions by issuing the card to customers and giving them free points for their money as these free points can be used automatically for discounts.
Sainsbury store staff wears named T-shirt of the supermarket to defer as a worker to serve people.
Place –
As per the Sainsbury it has 872 stores across UK whereas 837 super markets and 335 convenience stores. Various set up of stores are established across the country according to the needs and satisfaction of the customers and area. Sum stores are opened 24 hours a day for the satisfaction of the customers.
Sainsbury is making large chain stores in different locations to create a world class distribution of groceries and work more effectively.
Sainsbury’s uses marketing mix to improve and implement its plans by using market mix. It fulfils the needs of customers by improving its strategies which will satisfy customer. Sainsbury’s study on the market to the customer needs who will buy the products. It continues to implement the market division to progress its business strategies which shows the progress of a business. To increase its overall sales Sainsbury’s uses the market segmentation to display various varieties of products and sells it to different group of people. It offers a large number of products in a supermarket or convenience store and opens the store for long hours. It also offers easy cash option through debit or credit card and cash back facility to customers on their purchases.
http://katamaneni12.blogspot.com/2010/09/macro-environment-and-marketing-mix.html
Competitor Analysis
TESCO- Competitor Company Profile
Tesco is started by Jack Cohen in 1919. Tesco is biggest food retailer in the world, having 2318 stores and giving employment to more than 470000 people who serve millions of customer around the world. Tesco has a largest market in UK, where it operates under signs of Extra, Superstore, Metro and Express. Tesco offers more than 40000 products to customers including clothing and other non-food lines.
Tesco vs. Sainsbury’s
TESCO MISSION
‘TESCO is to provide superior technical representation and to add value to a focused group of leading-edge, corporations by offering synergistic, valuable and highly innovate solutions for our customer design, procurement and manufacturing needs with continuous improvement of our quality, service and productivity to a completive advantage.
TESCO VISSION
What sets TESCO apart from other distributors is our commitment to customer’s success, by bringing an in-depth knowledge of their technology and the value added services needed to truly support the customer. The result is cost-efficient, rapidly delivered technical superior products that the customers take pride in.
(http://www.tescoinc.co.kr/tesco/ecompany1.php)
MISSION STATEMENT
Sainsbury’s mission statement
“Our mission is to be the consumer’s first choice for food, delivering products of outstanding quality and great service at a competitive cost through working ‘faster, simpler and together.”
Source: Sainsbury Web site
Sainsbury’s company’s vision for growth
“Sainsbury plc’s present focus is to improve the performance of the core UK supermarket chain. Whilst doing so we will continue to explore and develop growth opportunities in other markets. Through implementing ‘Managing for Value’ we will stretch our ambitions and challenge the conventional wisdom within the Company, thereby unlocking our potential and delivering value.” Source: Sainsbury Web site
DIFFERENCE
STRATEGIES
SAINSBURY STRATEGY:
Sainsbury aims to provide quality products and good service at a competitive price through working faster, simpler, together and aimed to be the consumer first choice for food. Through a balance in sales growth, reduction cost and on-going margin improvements, Sainsbury look forward to progress growth. The company is dedicated to achieving industry leading margins within a dynamic, competitive market and to delivering strong double digit necessary profit growth in each year of its business programme.
TESCO STRATEGY:
Tesco has made a good progress with its strategy which consists of five elements reflecting its four established areas of motivation and Tesco’s long term promises on environment and community.
The ideas of the strategy are:

To be a successful international retailer
To develop the core UK business
To be as strong in non-food as in food.
To develop retailing services – such as Tesco Personal Finance, Telecoms and Tesco.com
To put community at the heart of what we do.

The market share of Tesco is 31.6% in the retail market and they also capture 50% of the grocery market share while Sainsbury has 16% and 22% of the market share respectively. Tesco sells massive products range and buy in big volume and sell it in cheap while Sainsbury buys product that are popular and their own branded product. 1/3 of the retail market is acquired by Tesco but Sainsbury is enabling to have this power.
Tesco achieved its success by selling varieties of products; it is located within UK as well as overseas, they target every people. With this strategy Sainsbury’s have a difficult to keep up with Tesco. Sainsbury’s generally attract the middle class people with low class prices whereas Tesco attract all kind of people from all classes. Sainsbury’s is more concerned about the quality of the food they provide their customers while Tesco is concerned about reducing prices to attract their customers.
Tesco’s main advertising approach is money saving ‘Every little help’ and Sainsbury’s ‘Taste the difference’ however during the crisis time they are one of the same. Sainsbury’s slip its second position in 2008, losing to Asda. Leader Tesco enlarged its market share in the year, moving ahead of Sainsbury’s. Sainsbury’s has less variety of non-food items as compared to Tesco. At the end of the evaluation period, non-food items were the reason for growth for the major supermarkets.
( http://www.oracle.com/us/corporate/analystreports/corporate/ovum-sainsbury-cs-170835.pdf)
MANAGEMENT
Sainsbury CEO Justin king has done a great job in strengthening the brand, improved turnover at a rate of 5.5% a year and profit increases by 6.7%. king main focus was on UK store expansion rather than overseas and total number of store has been increased from 583 in 2004 to 827 today.
Tesco CEO Sir Terry Leahy has different approach as compare to Sainsbury’s CEO Justin King. In his fourteen year term he has heavily invested in overseas expansion. In 1999, within UK Tesco generated 90% of its turnover and now it’s less than 70%.
GROWTH POTENTIAL
Tesco has its setups in 14 countries but that doesn’t mean Sainsbury’s lack growth opportunities. Sainsbury’s results in past years in the proof of this and continuing achieving high growth rate without international expansions. To exist in this competitive market Sainsbury’s has done well by opening new stores across UK, adding new non-food products and banking services to existing stores.
Tesco on the other hand, have more growth opportunities in Asia and other countries. Tesco is a big player than Sainsbury’s, for example: if we compare past twelve months results Tesco has £56.9 billion turnover versus Sainsbury’s £19.9 billion.
(http://www.fool.co.uk/news/investing/company-comment/2010/07/16/a-foolish-fracas-sainsbury-vs-tesco.aspx)
CUSTOMER OUTCOME AND EXPECTATION
Brand image and relationship building in a business to company market depends on how well company satisfies its customers. Sainsbury keep high quality of its services by providing high quality products to customers at a fair price. It has different prices which are suited to different kinds of customer. It provide basic product at low price to customer with low income. Sainsbury want to make it easier for customer to shop ethically and sustainably so they making every effort to live up to their expectations. Therefore from the above model, which explains between the company service and quality Sainsbury can be placed into high quality as well as service offered by the company and received by customers.
Question 3
http://www.universityessays.com/example-essays/global-markets-sainsburys.php
Mission statement serves a dual purpose by helping employees to remain dedicated on jobs as well as boosting them to find innovative ways of achieving company objectives so that productivity can be increased. It is common that large companies spend years and millions of dollars developing and refining their mission statement.
NEW MISSION STATEMENT OF SAINSBURY’S
“To become the UK best retailer company and earn customer lifetime reliability.”
NEW VISSION STATEMENT OF SAINSBURY’S
NEW VALUE PROPOSITION
Source: Barnes, C. et. al., 2009 Creating and Delivering your value proposition p 31
Market: Sainsbury already caters to the middle class customers by providing products at affordable prices, but since Sainsbury maintains high quality amongst its products, the cost somewhat becomes high (in a comparative sense to its competitors). Sainsbury needs to provide these products at a more reasonable price to cater to the working class as well and thereby expand its existing customer base.
Value experience: Benefits should include high quality at reasonable price. To reduce the travel costs Sainsbury needs to focus on locations of its stores so that they are effortlessly within the reach of its customers. Online sales should also be made easy. Complaints should be minimised by providing a good after sales service and monitoring customer feedback.
Offerings: Place should include a focus on central locations. Product should include highest possible quality at affordable prices, new and innovative products could also be introduced to increase sales. Since the financial downturn of 2008 had drastic effects on the economy, consumers are trying to save as much as possible hence Sainsbury needs to keep the prices of its products as low as possible. Promotion should involve promotion of sales through discount vouchers or limited offers (e.g. buy 2 get 1 free) and continuous advertising through all available media types.
Benefits: products need to be provided at the lowest possible price maintaining high quality. Constant customer feedback should be facilitated in order to keep track of its customer’s satisfaction.
Alternatives and differentiation: Since Sainsbury focuses on quality more than the price of its products. The quality of Sainsbury’s products is higher than most of its competitors, but this phenomenon is not the same when it comes to price. Sainsbury needs to balance between its price and quality since its competitors such as Tesco are providing products at a lower price that is offered by Sainsbury.
Proof:
IMPLEMENTATION PLAN
By using Ansoff Matrix tool for strategic marketing planning help to improve the position of J. Sainsbury. It accelerate to do best strategic direction depending upon the need/desire to penetrate existing or new markets with existing or new products. (http://www.emp.ac.uk/linspdfs/marketi2.pdf)
If Sainsbury need to reconstruct their values, strengths and beliefs they need to split up their position in the existing market. They facing extreme competition in the real market they must modernize and create in new markets with their present product offering.
Partnership is a necessity in the domestic market since this is the basis of the business and its primary values. It will help the Sainsbury to rebuild its image and the connection with existing customer by confirming them the best quality, best product offers at competitive pricing.
Sainsbury’s need to improve in its Information Technology system so that information can be processed faster and stocks can be reloaded at a faster pace. The shelfs are always stocked well and the customers keep getting informed about the available varieties. All these hard work make the shopping experience enjoyable and satisfying for the customers.
As the world faced recession almost globally, Sainsbury should avoid price related conflicts and must follow specific price strategy. Since customer will not be willing to pay high prices even for the best quality products hence low pricing should be planned for the quality product.
Identify problems and in time solving them as quickly as possible so that they build strong communication at every step of the channel.
To introduce some products this will give a comparative advantage over their rivals. Sainsbury should open local stores in the city rather than on the outskirts of the city. Customer generally chooses to purchase in local shop rather than supermarkets to save time and money.
Introduction of pay point or post office to the store would be a good idea to attract customers. The customer immediately after purchase can pay their bills without wasting time to reach these places elsewhere in the city.
Sainsbury’s need to increase its online shopping service in non-food items, so that customer can shop online more comfortably.
I would recommend Sainsbury’s to deliver every little helps to make it a healthier place for shop. Use simple processes so that shopping is better for customers, simpler for staff and cheaper for Sainsbury’s.
 

Sainsbury’s Ratio Analysis

Accounting and Finance Assignment – Sainsbury’s Ratio Analysis
Nowadays, it is important for organizations to know how to survive in the competitive market in which they are involved, markets that require managers who understand and are aware of the internal and external factors that concerns to the company. Therefore, it is vital to know the existence of different techniques of measurement such as financial tools, which can give an idea on how the company’s financial situation is going to affect its performance in the marketplace.

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One of these tools can be the used of financial ratios, which gives to managers the information to set up strategies in order to make decisions in the future. However, it is important to highlight that this ratios provide an overview of the business’s financial condition, but an analysis in depth is needed to know the reasons why certain changes have occurred (Maclaney and Atrill, 2002). Nevertheless, there are some limitations in the used of financial ratios, for instance, the information is out of date so it does not reflect the real situation of the company, hence it can lead to wrong decisions, also, the analysis made from the financial statements gives symptoms of such situations but not the causes of it (Berry and Jarvis, 1997).
The purpose of this report is to analyze Sainsbury’s financial performance using the analysis of ratios as a financial tool. This information will be taken from the annual reports of 2003 and 2004. In addition, it will include external and relevant information of the company which adds value to the analysis and thus to the financial performance in the already mentioned period of time. This will also help to compare Sainsbury’s with its competitor Tesco, in order to identify and evaluate the performance of both companies. Finally, this report will give conclusions and recommendations to those investors who want to make an investment in a secure company.
RATIO ANALYSIS
Profitability Ratios
According to Maclaney and Atrill (2002, p. 197), Profitability ratios provide an insight to the degree of success in achieving this purpose. For instance, the profitability ratios of Sainsbury plc are:

Profitabiliy Ratios

2004

2003

Return on Capital Employed

8.53%

9.29%

Return on Equity

7.64%

8.95%

Gross Profit Margin

8.65%

8.14%

Net Profit Margin

3.91%

4.25%

Table 1. Profitability Ratios (Base on data contained in Appendix A)
Regarding on this table, Sainsbury’s profitability ratios show a moderately deterioration in profit from 2003 to 2004 in a margin of 6%. This downward trend is due to several changes the company had such as, (1) the sell of JS Development and Shaw’s supermarket, this has an impact on the company’s current assets (cash) and profit, in one hand it brings in cash for the sell but on the other hand it stops the daily cash input, consequently there were a decline in profit in 2.6%; (2) the purchase of Swan Infrastructure Holdings Limited, which consist of a whole modern IT system and it is part of a Business Transformation Programme, therefore, there was a rise in 6% of the capital employed (fixed assets and net debt), and also a significantly fall in cash in 27%. Because of all these reasons, there was a drop in profit, but as it is a long-term investment it is estimated to be an income generation in the future.
Efficiency and Effectiveness Ratios
These ratios are used to try and identify the strengths and weaknesses of a business using a variety of different ratios (Giles et al., 1994, p. 371). The following table illustrates the efficiency ratios used in Sainsbury’s case.

Efficiency and Effectiveness

2004

2003

Fixed Asset Turnover

2 times

2.17 times

Debtor Collection Period

1.51 days

2.48 days

Creditor Payment Period

28.83 days

28.78 days

Stock Holding Period

17.61 days

18.67 days

Table 2. Efficiency and Effectiveness (Base on data contained in Appendix A)
The fixed asset turnover has slightly decreased due to the acquisition of Swan Infrastructure Holdings Limited, which caused a rise of 7.73% on Sainsbury’s fixed assets in comparison with the year 2003. Moreover, sales have remained constant which have risen in 0.3%. The purchase of the IT systems will give opportunities to enhanced operational effectiveness, a stronger platform, low costs and an increased in sales.
In what a debtor collection period concerns, although this ratio shows a very little period to collect debts from customers, it is logic for this kind of business to be like that owing to the fact that being a supermarket, sales are in cash, only a 8% of the current assets are related to debtors, which had a fall in almost 40% comparing with 2003. On the other hand, the creditor payment period has stayed constant and it shows good rates. The cycle of both debtor collection period and creditor payment period demonstrates that the company receive the money from their debtors before paying to their suppliers, which is good since they do not need to finance themselves but pay with the cash they get in from debtors.
Regarding to the stock holding period, even though it has fallen in 1 day, it still is high for a business like supermarket in which the stock plays an important role because the rotation has to be in short periods of time to keep the food fresh. However, it is good to consider that Sainsbury also have a stock of electro domestics, entertainment, house-wares, etc., that the rotation is meant to be in long periods of time.
Liquidity Ratios
As Maclaney and Atrill (2002, p. 197) said, Certain ratios may be calculated that examine the relationship between liquid resources held and creditors due for payment in the near future. These ratios in Sainsbury’s company are as follow.

Liquidity Ratios

2004

2003

Current Ratio

0.83:1

0.87:1

Acid Test (Quick Ratio)

0.67:1

0.70:1

Table 3. Liquidity Ratios (Base on data contained in Appendix B)
The current ratio has a slightly fall, due to the current liabilities rising faster than the current assets. Looking at the current liabilities it can be seen that the company is using bank loans to finance the acquisition of the IT systems by the group, which increased in 63%. The current assets have also been affected by a decreased in 27% of cash account since a 10% of the purchase was made in cash. Similar situation happened with the acid test ratio with a slight fall in the rate.
These ratios show a low rate, due to the fast stock rotation which produces cash sales. Although, it seems like the current assets do not cover the current liabilities, the liquid assets are used as productively by the growing of the business to make it more effective, thus profitable.
Capital Gearing Ratios
This is the relationship between the amount financed by the owners of the business and the amount contributed by outsiders (Maclaney and Atrill 2002, p. 197). For instance, Sainsbury’s capital gearing ratios are:

Capital Gearing Ratios

2004

2003

Gearing Ratio

28.54%

25.97%

Times Interest Covered

5.91 times

5.31 times

Table 4. Capital Gearing Ratios (Base on data contained in Appendix B)
The gearing ratio has increased by 9% due to the long-term debts rising faster than the capital employed during the period from 2003 to 2004. The long term debts went up by 14%, which is because the purchase of IT fixed assets and also the company resort to operations in the capital market and by operating subsidiaries to deal with the interest rate and current risk these finance involves. On the other hand, the times interest covered stayed constant and even though is a low rate, the company still can cover its interest with their profit.
Investor Ratios
Certain ratios are concerned with assessing the returns and performance of shares held in a particular business (McLaney et al., 2002, p. 197). In this case, the investor ratios for Sainsbury’s are the followings:

Investor Ratios

2004

2003

Earnings per Share

0.20

0.23

Price Earnings Ratio

12.63 times

9.54 times

Dividend Yield

6

6.89

Dividend Cover

1.32

1.52

Table 5. Investor Ratios (Base on data contained in Appendix B)
The earning per share has fall by 13% mainly caused by the higher profits on business disposals that the company went through last year, so the return to shareholders was a lower rate per share. In contrast, the price earning per share growth by 24%, due to the increase in the market share price in 14%, this is a good new for Sainsbury’s since it reflects that the market confidence grew from 2003 to 2004. The dividend yield had a slightly decreased since the dividend per share only increased by 0.7% from last year. This was a decision from the company and it reflects the reduction in the earning per share already mentioned and the fall in the dividend cover by 13%.
RECOMMENDATION TO POTENTIAL INVESTORS
According to the information given by the ratios analysis in the last section, it can be said that even though the company’s ratios showed a decreased rates from 2003 to 2004, the expectations of the business performance looks profitable. This is due to the Business Transformation Programme, which consists on the acquisition of IT systems and the sell of Shaw’s Supermarket and JS Development. The former will be a positive impact in the financial performance of the company in a long-term by increasing sales and reducing costs; and the latter will be used to develop and make more effective the financial and management resources, hence it will enlarge Sainsbury’s core UK business and strengthen its market position.
Therefore, from the ratios analysis, it can be stated that Sainsbury’s is not a good company to, at present time invest in, since the company has not showed a significant growth in profit during the last financial year. To conclude, if Sainsbury’s finances start to grow, there is no doubt that investors should consider this company to invest in as it plans a better performance in the long-term.
In the next part, it will be given some additional information about Sainsbury’s and also a comparison with Tesco.
RELEVANT INFORMATION ABOUT SAINSBURY’S
The acquisition of IT system was an important contribution to lead Sainsbury’s strength its position in the high competitive marketplace. Whereas the group chief executive of Sainsbury’s said: The net reduction in costs will provide Sainsbury’s with additional resources to develop our customer proposition, by investing in quality and innovation and improving further our competitive offer, as we move towards trading our business harder from summer 2004 (http://www.j-sainsbury.co.uk/index.asp?PageID=19&subsection=&Year=2004&NewsID=384), there are some opinions that contrast with the statement already mentioned, which states that this acquisition of sophisticated technology was too ambition and did the approach too quick, now Sainsbury’s is in a worst position than it was before (Smiddy cited O’Brian, 2004). In addition, after have used the new IT system, Sainsbury’s realized that the supply chain system have failed and it did not work as they have expected, it did not increased productivity and the costs were higher than they were years ago (http://www.computerweekly.com).
SAINSBURY’S vs. TESCO
The supermarket industry is very competitive nowadays, and even more when it comes to the customers satisfaction which is more and more demanding, so it is important for companies in this business to be focus in valued than in profitability, since the former leads them to the latter.
Sainsbury’s and Tesco are two of the principles supermarket chains in UK. Both chains have similar things to offer, such as own label goods; have concern about consumers needs for example healthy and organic food; launched loyalty cards; expand their products such as clothing, electro domestics, etc. and others. On the other hand, they have some differences that make one stand out from the other. While Tesco have a good supply chains and a good strategy, which is having low prices and improving customer satisfaction by having the right products in shelf, Sainsbury’s is facing some problems in what a supply chain relates to the implementation of the IT system (http://proquest.umi.com), which causes the lack of products in the shops and also the customers find it more expensive than its competitors, where they can have equal quality products with lower price (http://proquest.umi.com).
There are other differences between Sainsbury’s and Tesco, but there is an important question which is where to invest?. It is important to draw attention to the fact that Sainsbury’s financial situation does not attract investors, due to the decrease in the profit and sales. In addition, the company has being going through its first loss in 135 years of history (www.accountancyage.com). This reduction was mainly caused by the 554 million acquisition of IT system, and by the drop in profits for the financial year. Thus, it can be said that Tesco might be a better choice to invest in, but this is open to discussion.
CONCLUSION
Taking into consideration the ratio analysis applied to Sainsbury’s, it can be said that the company had some variation between 2003 and 2004. Whereas, most of the profitability, efficiency and effectiveness, liquidity and investor ratios demonstrate decline, the gearing ratios demonstrate a rise due to the growth in the long-term debts and the capital employed.
Understanding the ratio analysis and the relevant information gathered looks like Sainsbury’s has gone through some difficulties in their supply chain and their financial and marketing management. Although they have invested in a long-term project and are positive in a potential growth in the coming years, to reach their aim they have to work hard and play in the same field its competitors (Tesco and Asda) are doing, by having low prices and good quality food always available in their shelf for all kind of consumers.
Sainsbury’s still have a strong position in the retail sector in the UK. For this reason it is good for investors to wait and see its performance for the next years, currently is not a good moment to invest in.
REFERENCES
BERRY, A. and JARVIS, R., 1997. Accounting in a Business Context. 3rd Edition. London: International Thomson Business Press.
GILES, R. and CAPEL, J., 1994. Finance and accounting. 3rd Edition. London: MacMillan.
HARDING, D., 2005. Supermarket sweep-up for Sainsbury’s. Accountancy Age. Available from: [http://www.accountancyage.com/news/1139885] Accessed 22/Apr/2005.
MARKETING WEEK, 2004. Reinvention is the only option left for Sainsbury’s. Marketing Week, pg. 30. Available from: [http://proquest.umi.com/pqdweb?did=727035691&sid=8&Fmt=3&clientId=15517&RQT=309&VName=PQD] Accessed 20/Apr/2005.
MARKETING WEEK, 2005. Sainsbury’s promises must mean business. Marketing Week, pg.22. Available from: [http://proquest.umi.com/pqdweb?did=792773011&sid=9&Fmt=3&clientId=15517&RQT=309&VName=PQD] Accessed 20/Apr/2005.
MCLANEY, E. and ATRILL, P., 2002. Accounting An Introduction. Second edition. London: Prentice Hall.
O’BRIEN, L., 2004. Sainsbury’s blames profit warning on supply failures. Supply Management, 9 (22). Available from: [http://proquest.umi.com/pqdweb?did=749826531&sid=8&Fmt=4&clientId=15517&RQT=309&VName=PQD] Accessed 20/Apr/2005.
SAINSBURY’S WEBSITE, 2005. Annual Report and Financial Statements 2004. Available from: [http://www.j-sainsbury.co.uk/index.asp?pageid=20] Accessed 15/Apr/2005.
SAINSBURY’S WEBSITE, 2005. Sainsbury’s simplifies financing of IT contract with Accenture. Investor News. Available from: [http://www.j-sainsbury.co.uk/index.asp?PageID=19&subsection=&Year=2004&NewsID=384] Accessed 20/Apr/2005.
 

Marketing Strategy of Sainsbury’s

Introduction
The aim of this report is to provide an in-depth marketing analysis linked with the UK supermarket segment. The core idea here would be to develop an integrated research by highlighting one of the supermarkets and then developing core recommendations to improve the business presence in the market. It is important to highlight that the primary focus of the research is linked with the establishment of a more viable marketing strategy for ‘big 4’ supermarkets in the region. The report initially starts off with the development of a path to highlight the current supermarket situation in the market. The main focus here is to highlight the current market shares and the overall trends in the industry. This is followed by the choice of a single supermarket out of the big four. An analysis on that particular firm from the current market situation is conducted. This moves into the development of a marketing recommendation for the business. The main idea here is to develop a viable marketing strategy in order to improve the overall market visibility of the firm.

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UK Supermarket Industry
The aim of this section is to highlight the current landscape of the UK supermarket industry. Butler (2015) states that the UK supermarket industry is one of the most competitive areas of the country. There are a total of 4 key supermarkets in the region, namely Tesco, Asda, Sainsbury’s and Morrsions. The Economist (2015) highlights that together these four supermarkets have over 60% of the total market share and hence are fairly visible in the market. However, over the past 5-10 years a slow yet strategic shift has happened. The UK supermarket industry has seen an influx in discounted supermarkets such as Lidl and Aldi. This has had a direct impact on the consumer buying pattern and hence seen a direct shift on the current big 4 from a market development and share point of view. Butler (2015) states that the development of discounted firms are impacting the overall landscape of the market by in fluxing a shift in market share. Hence, from a big 4 point of view.
Sainsbury’s
The focus of this report is based on Sainsbury’s as an organisation. Sainsbury’s currently has 16% of the market share and reported a revenue of GBP 23billion in 2014 (Sainsbury Annual Report, 2014). The organisation, since its inception has seen rapid development in its market share growth. However, Butler (2015) states that Sainsbury’s over the past decade has had a decline in its overall sales, with 2011 being one of the lowest revenue generation months for the business. This is clearly a sign of the firm losing traction in the market and therefore an indication that the organisation needs to revamp is current marketing strategy.
Marketing Audit
After establishing that as a firm Sainsbury’s needs to have a more visible approach to market its presence it is important to critically analyse the organisation’s current marketing strategy. A marketing audit is a comprehensive, logical process which allows a firm to develop an understating of where it lacks and servers as a mean to improve its market position (Ashill et al, 2003). To analyse, four key areas were analysed, segmentation, targeting, positioning and promotional marketing strategy.

Segmentation is defined as one of the most important elements linked with market development (Varadarajan, 2010). The core notion of Sainsbury’s point of view involves both geographical and behavioural segmentation. The organisations uses the UK region as the primary geographical segment, on a behavioural side the firm aims to push itself as a mid-tier brand. The idea here is to capture market share based on the concept of best value for money.
Targeting from a marketing point of view defines how an organisation portrays or highlights itself in the market (Pehrsson, 2004). Sainsbury as a firm uses segmentation based on behaviour which further trickle down to the organisation’s targeting strategy.
Positioning defines how an organisation is perceived in the market. The core driving force here is normally how an organisation positions itself from a pricing point of view (Sainsbury Annual Report, 2014). Sainsbury as an organisation aims to target a more quality centric market and hence the pricing strategy of the firm ranges between medium and high end of the market (Banerjee and Dholkia, 2012). The firm uses this positioning strategy to highlight how it creates value for its consumers.
Promotion: Promotional strategy is lined with the development of a process that allows an organisation to connect with its audience (Doyle and Stern, 2006). Sainsbury’s, as it stands uses a traditional marketing approach using television, radio and billboards to promote its products (Sainsbury Annual Report, 2014).

Keeping this in context, it is important to indicate the development of a viable marketing strategy for the business. However, core limitations in the organisation’s current strategy are tied to its positioning strategy as well as how it promotes its products. The overall limitation is a liner positioning strategy that is almost always impacted by discount stores and their ability to under-cut the firm’s offering (Butler, 2015). This is a clear limitation from Sainsbury’s end as it allows the discount based organisations to take over the market share of the organisation and hence limits the overall position as well as the growth or the organisation. Furthermore, as highlighted in the audit, Sainsbury’s as an organisation uses a traditional promotional approach which has limited impact on the market development of the organisation. Research conducted by Bernhardt et al (2012) state that organisations operating at a large or small-scale need to develop a forward facing approach to promotional activities, which means that the use of social media forms a critically important component of market growth. This aspect which is missing from the organisation’s current strategy, therefore needs to be revamped and is discussed in the recommendations section.
All in all it is clear that while Sainsbury’s is a well-known firm that operates on a large scale, the overall marketing strategy for the business is limited and hence the organisation being impacted significantly due to these marketing limitations.
Marketing Recommendations
While the previous section highlights the overall positioning of Sainsbury’s from a market point of view, it is now important to highlight core recommendations based on the initial audit conducted. In order to develop a viable marketing and business development strategy, it is important to develop a re-vamped marketing mix and then indicate a core promotional strategy based on this marketing mix. Three key areas of revamping segmentation, targeting and positioning is discussed below which lead to the development of a new marketing mix.

Segmentation
It is recommended that Sainsbury’s uses its current geographical positions to further enhance its market sustainability. The idea would be to continue to use a geographical segmentation approach with focus on geographical specific deals based on the concentration of buyers. This would allow the organisation to develop a bespoke formula to develop a segmentation strategy that improves business position in the market.

Targeting
Sainsbury’s needs to develop targeted tiers linked with its products. The main focus here would be to develop a target market that is not just quality but also value conscious. With a re-vamped product linked and improved positioning the main focus of the organisation needs to be on the development of a wide target audience linked directly to the variety of the products being offered by the firm.

Positioning
As discussed in the previous section, Sainsbury’s has positioned itself at the mid-tier of the market. The idea, based on the audit would be to introduce products that are able to compete with the lower end of the market from a pricing point of view. This would allow the organisation to develop a market presence which moves to penetrate the discounted market segment.

The new STP strategy allows the firm to develop a more diverse role. This is critical from a development as well as an execution point of view as it would allow the organisation to re-position itself based on the current market demand and hence challenge the overall approach undertaken by the discounted supermarkets segment. Keeping the above in context, the following discussion highlights a re-vamped marketing mix for the firm. Kotler and Keller (2012) state that a viable marketing mix allows an organisation to improve its marketing strategy and therefore increases the level of sustainability for the organisation.

Product: An integral part of any firm, product defines an organisation and is therefore linked with the core offering of the brand. Sainsbury’s being a supermarket offers a wide range of products. However, keeping the new segmentation and positioning strategy in context, the firm needs to develop a new product line of its top sellers. The idea would be to use a cost conscious approach with products that are of a higher quality than the discount stores. This would enable the firm to have a product line which can compete directly with the discount market segment.
Price: The current pricing model needs to be improved if the firm wants to compete with the discount stores. The idea here would be the use of a pricing strategy that is diverse and hence spreads from low to the higher end of the market. This would allow the organisation to improve its current market position and hence develop a wider audience spectrum.
Place: The current approach of the firm is applicable here which is the use of physical stores as the primary location for the business. It is recommended that this approach is continued however emphasis on temporary pop-up stores which promote and sell the new cost centric product line need to be introduced. This along with an emphasis on online shopping needs to be injected into the business.
Promotion: The promotional strategy of the business is discussed in the following section. However, the organisation needs to develop a footprint in non-traditional promotions in order again positive market share for the business.

The re-vamped marketing mix would allow the organisation to have a much stronger position in the market and therefore improve the position of the firm from a developmental point of view.
An integral part of any marketing strategy is linked with how well a firm promotes itself in the market. Keeping the current strategy of Sainsbury’s under consideration, the idea here would be to develop a new promotional strategy which would improve the overall visibility of the organisation, key points of this strategy are discussed below:

Pull Approach: As it stands the organisation using a push based promotional strategy. Pull promotional approach allows firm’s to engage their target audience (Hooley et al, 2012). This is something that needs to be adapted by Sainsbury’s in order to develop a viable footprint in the market. While traditional marketing is effective, Sainsbury’s needs to move into the non-traditional form of marketing promotions these are further detailed below.
Non-traditional Marketing: The idea here would be the use of social media channels such as Facebook and Twitter in order to develop a direct link with the target audience. This would allow the organisation to engage its target audience and enhance the organisation’s current footprint in the market.
Comparative Adverts: Sainsbury’s needs to provide direct quality centric analysis of its products with the discounted stores. This would help consumers realise the value offering of Sainsbury from a product point of view.

Overall, a combination of a new marketing mix long with the use of a viable approach to promotions would improve the firm’s position in the market.
Conclusion
The discussion above highlights the importance and relevance of developing a market centric strategy. It is clear from the analysis that the UK supermarket industry is very competitive. Although it is currently dominated by the big 4 of the market, the current approach is not sustainable. The analysis highlighted that Sainsbury as an organisation use a limited marketing approach which has allowed discount stores to gain market traction. Keeping the discussion in context, a new marketing direction was proposed. The idea here would be to widen the pricing spectrum and launch a product line that directly targets the discount store offerings. This along with the use of a promotional strategy that is more effective in the current environment was proposed.
References
Ashill,N. Frederikson,M. & Davies,J. (2003) Strategic marketing planning: a grounded investigation, European Journal of Marketing, Vol. 37(3), pp. 430 – 460
Banerjee,S. and Dholakia,R. (2012) “Location-based mobile advertisements and gender targeting”, Journal of Research in Interactive Marketing, Vol. 6 Iss: 3, pp.198 – 214
Bernhardt,M. Mays,D. and Hall,A (2012) “Social marketing at the right place and right time with new media”, Journal of Social Marketing, Vol. 2 Iss: 2, pp.130 – 137
Butler, S. (2015) Aldi overtakes Waitrose to become UK’s sixth-largest supermarket chain, Available from: http://www.theguardian.com/business/2015/apr/08/aldi-overtakes-waitrose-to-become-uks-sixth-largest-supermarket-chain
Doyle,P. & Stern,P. (2006), Marketing Management and Strategy, Harlow: Prentice Hall,
Hooley,G. Piercy,N.F. & Nicoulaud,B. (2012) Marketing Strategy and Competitive Positioning, Harlow: FT Prentice-Hall
Kotler,P. & Keller K. L. (2012), Marketing Management,14th Edn London: Prentice Hall
The Economist (2015) Learning to be different, Available from: http://www.economist.com/news/britain/21638171-some-glimmers-hope-struggling-supermarkets-learning-be-different
Morrisons, Available from: http://www.northdevonjournal.co.uk/Discount-supermarkets-overtaking-Tesco-Asda/story-26501630-detail/story.html
Pehrsson, A. (2004) “Strategy competence: a successful approach to international market entry”, Management Decision, Vol. 42 Iss: 6, pp.758 – 768
Sainsbury Annual Report (2014), Available from: http://www.j-sainsbury.co.uk/investor-centre/reports/
Varadarajan,R. (2010), Strategic marketing and marketing strategy: domain, definition, fundamental issues and foundational premises, Journal of the Academy of Marketing Science, Vol. 38, pp. 119- 140
 

Sainsburys Opportunities for Expansion: Analysis

1. Introduction
The aim of this report is to analysis the accessibility and strategies for Sainsbury’s to entry India retailer market. Based on findings, the report employs Dunning OLI theory and Porter’s diamond framework to discuss the possibility of Foreign Direct Investment (FDI), gives recommendation on whether Sainsbury’s should access Indian supermarket sector or not. Furthermore, it provides some available strategies for addressing and strengthens risks and opportunities in India. Strategies comprise of several elements, which include entry mode, location choice, main products, human resource strategy and marketing strategy.

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As known, with huge domestic demand and fast growing GDP rate, India is one of the fastest growing emerging markets. Although, bearing various restraints for MNEs, it also has high potential in economic development, which makes India one of the ideal destinations for multinational enterprises (MNEs). Strict commercial regulations set by Indian government pose additional potential risks for MNES to cooperate with local enterprises. By giving emphasis on regulation aspect, this report also examines Sainsbury’s ability for surviving in the competitive market.
Wal-Mart and Tesco have invested capital into India market for a while. Some people keep positive think that they can successful survive in local competitive market. But some people still keep looking this new market. No matter what difference of MNEs consideration, Invest in India seems a new trend in many industries. Based on very different opportunities and risks, what kind of strategy does Sainsbury’s can develop in India, and that is our group learning from here and concerning.
2. Company profile
Sainsbury’s is the third biggest supermarket retailer in the UK. There are more than 290 convenience stores and 502 supermarkets across the UK. According to statistic provided by Datamoniton (2010), more than 18 million customers visit Sainsbury every week. The financial performance is excellent for the past few years, as reported the pre-tax profit increased by 57.3% from £466 million in 2009 to 733 million in 2010. (Key note, 2010). Food and grocery are the main products, despite of displaying high-end products from other independent suppliers, the own brand which accounts for 40% of its sales, also showed promising driving power. Moreover, its new strategy is to develop more products of private labels and promote local organic products (GMID, 2010).
3. Macro and micro investment environment analysis
The macro and micro investment environment analysis integrated two methodologies. Basically, this report adopts Dunning’s (1988) OLI theory to critically examine Sainsbury’s ownership, location and internalization conditions in India. However, due to the limitations of OLI theory, the report also employs Porter’s diamond theory to help to give full interpretation. It would contribute to give a depth and board analysis of investment environment.
3.1 Ownership analysis
Table1. Ownership analysis
Advantages
Disadvantages
Capital advantage
High reputation for offering good quality food to customers
Low demand of electric energy
Less FDI experience in Asia
Relatively weak demand of matched customers
Low level infrastructure and poor electricity supply
In terms of Sainsbury’s ownership, there are three principal advantages.
3.1.1 Strong capital position
Sainsbury’s has stronger position that superior to the Indian local biggest retail companies. Compared Pantaloons Retail Limited, which is the biggest Indian retailer with an asset of Rs 1030.16 million, Sainsbury’s has a net current assets £4,966 million in 2010 (£1=Rs47.273, Feb, 2011) (Sainsbury’s annual report, 2010, refresh annual report, 2009-2010, Yahoo finance, n. d.). Big Bazaar and Food Bazaar, the subsidiaries of Pantaloons, are the first and second biggest retail shops in India (Techchandani, n. d.).
3.1.2 Serve for customers
Sainsbury’s has strong awareness of offering good quality foods to customers. In the UK, proprietary, a system that retailers indicate quality assurance by selling products under their own labels as their brand products, is a common method (Holleran, Bredahl and Zaibet, 1999). Under this system, Sainsbury’s sells foods as its brand, and consumers trust its brand (Cotterill, 1997). It is because the high quality own brand merchandise that enhanced Sainsbury brand influence, also improved supply chain management, to fulfill the customers, suppliers and Sainsbury’s needs (Baidu, 2011)
3.1.3 Low electric energy store operating skills
During 2009 to 2010, Sainsbury’s reduced its consumption of energy 2.5% despite of extending over 6% of its space by introducing eco-light bulb for store operation (Sainsbury’s, 2010). India is fifth biggest energy consume county and its energy supply is in a poor condition (India Energy Market Overview, 2010, Central Electricity Authority, 2010). Therefore, operating stores in instable electric condition, this low energy store operating skill might be competitiveness when competing with others (Sainsbury’s, n. d.).
3.1.4 Weakness
On the other hand, there are also limitations. Though, Sainsbury’s is operating a head office in Hong Kong and it trades Asian products directly to Sainsbury’s in the UK, the operating type is not a retailer. Without investment or operations overseas as a retailer company, Sainsbury’s is lack of experience (Import Bureau, n. d.).
3.2 Internalization analysis
As relative data mentioned, it shows that immature supply chain management and poor quality of infrastructure and technology skills are keys to add transaction costs. Recently, Sainsbury’s is aggressively developing strategy of private label, it includes food and non-food product (GMID, 2009). In order to maintain high quality and low costs own-brand, logistics management and advanced technology play critical roles. However, India supply chain is not well developed. For example, many food suppliers cannot prevent food spoil in hot weather. Therefore, Sainsbury’s cannot exploit local logistic to link present strategy of private label (GMID, 2010).
Furthermore, it is a challenge for Sainsbury’s to decrease transaction costs effectively in India. Tsao et al (2010) reported that it is high spoilage rates around between 25% and 30% in grain supply chains. Besides, lack of information technology, logistics concepts make the service price greater crop costs approximately over 2.4 times. Sainsbury’s incurred high costs by 210% despite the fact that wholesalers, retailers and the intermediaries are the foundation for determining the final price. By contrast, in the western countries, the rates are approximately 3% and between 50% and 100%. Therefore, in this immature environment, Sainsbury’s may greatly shrink its margin.
3.3 Location analysis
Advantages
3.3.1 Market size (Porter’s diamond)
The organized retail sector makes up 5% of the Indian retail market. According to a research, investment in the organized retail market was around $ 503.2 million in 2009, and will increase to $1.26 billion in the next four to five years. India’s retail sector is expected to have a 10% increase in its compound annual growth rate and also estimated to reach US$ 833 billion by 2013 and US$ 1.3 trillion by 2018 (‘Business maps of India’).
3.3.2. Increasing demand (Porter’s diamond)
Nowadays, potential investors are attracted to the Asia Pacific retail market because of their population size and growth prospects, the relative immaturity of many markets in these regions helps them to take advantage by organizing the retail sector and increase the share of overall retail sales (‘Business Environment Outlook’, 2010). The A.T. Kearney’s annual Global Retail Development Index for 2010 categorises the retail market in India is as the fifth largest destination in the world and also the third most attractive emerging market for investment in the retail sector (‘Market Overview’, 2010).
3.3.3. Low Labor costs (Eclectic paradigm)
A new survey shows that labor costs in India are euros 2,024 a year, while the financial cost of employing a worker in Belgium, Sweden and Germany is more than euros 50, 000 per year (‘SiliconIndia news’, April 2005). Besides, there is a high level of qualified English speaking workforces in India.
3.3.4. Competition condition
According to the retail market data, the table shows that India maintains the 2nd position with a high score of 63 for its market entry potential. This simply reflects India’s underdeveloped retail market as well as the absence of local and multinational competition. India also recorded a good score for the value of retail sales and prospects for retail growth.
In this market, there are local mom and pop family stores and the existing supermarket brands occupying the majority domestic market, as well as multinational brands which are planning to enter. Mom and pop family stores still dominate supermarket business. Since the large super market chain has not build an effective supply chain yet, it leads to the increase of products’ prices. Moreover, people prefer the service, as most of these shops offer home delivery, easy credit, and gifts and discounts for customers, by contrast, large supermarket cannot offer as good service as Mom and Pop. In addition, more than 2000 supermarket chain closed in 2008 due to these little shop and economic downturn. It is a significant challenge for the most supermarkets now and future (Srivastava, 2009). Despite of the existing 15 stores spanning India, Marks & Spencer Reliance India are planning to open 35 stores over the next five years. Carrefour SA, the largest retailer of Europe, is planning to open wholesale stores in India by 2010 and has planned to set up the cash-and-carry outlet in the National Capital Region. Mahindra Retail, a part of the Mahindra Group, is also planning an investment at about $ 19.8 million.
Threats
Table2. Asia pacific retail business environment ratings
Source: India Retail Report Q3 2010, pg. 10
3.3.5 Limits of Potential Returns
Within the country structure category, India drops to the bottom of the table with a score of 40 indicating that a high score for the size of its population is balanced by low scores for its small urban population and spending capacity of its general population (Business Environment Outlook, 2010).
In terms of retail market data, the table shows that India maintains the 2nd position with a high score of 63 for its market entry potential. This simply reflects India’s underdeveloped retail market as well as the absence of local and multinational competition. India also recorded a good score for the value of retail sales and prospects for retail growth.
3.3.6 Risk of Realisation of Returns
The market risk data shows that India has the second lowest score. This signifies that the regulatory environment would affect factors relating to market entry.
The country risks data also rating India as the second lowest. This shows that India possesses a high score in the areas of economic instability and policy, moderate in the areas of financial risk, short-term economic rating and short-term political rating. Finally, India has a poor score for long-term inflation, institutions, physical infrastructure, market orientation and labour infrastructure (Business Environment Outlook, 2010)
3.3.7 Infrastructure of advanced factor (Porter’s diamond)
The Global Competitiveness Report 2010-2011 reports that India’s infrastructure is in serious need of upgrade especially in respect to transportation and energy supply (‘World Economic Forum’). In relation to this, much of India’s farm produce gets to rot to market because of few refrigerated trucks and lack of modern transport logistics management (The Telegraph, 2011).
Table3. India’s development stage
Source: Global Competitiveness Report 2010-2011
The diagram above shows the stage of development in comparison with the rest of the world. The diagram indicates that India is still in stage 1 which is the factor driven stage. India scores 3.5 out of 7 with respect to its infrastructure which is quite poor and needs an upgrade.
It is very important to possess efficient infrastructure because it is a critical determinant for economic growth and it determines the location for economic activities and this helps to connect markets between regions and also reduce the cost of marketing in another region (‘World Economic Forum’)
4. Recommendation
Based on analysis of Dunning OLI theory and Porter’s diamond, the shortages makes Sainsbury cannot fulfill all elements at the same time. Despite of India’s huge market size and fast growing economy, there are still shortcomings which will affect Sainsbury’s investment. It lacks good infrastructure, high level of corruption, long-term inflation, unstable government policies and issues with government regulations on FDI. Furthermore, it is facing the competition from both local competitors and other multinational enterprises which are investing or planning to. A good example for lack of infrastructure is the need for more enough refrigerated trucks to preserve farm produce during transportation to the markets and this can also be related to the lack of a modern transport logistics management. Lastly, it may not have cost efficiency as invest supermarket in India. Therefore, we strong recommend Sainsbury’s do not direct invest supermarket in India now.
However, we support the second option for Sainsbury’s. We suggest that Sainsbury enter India in the term of operating as a supplier business.
It based on followed reasons:
1. In July 2010, Dean Nelson reported that India is making a move to deregulate its retail sectors so as to allow British supermarket giants like Tesco and Sainsbury’s has the opportunity to set up new stores throughout the country.
2. More also, Britain is hoping that India will lift its restrictions in various sectors like banking, insurance, financial and professional services so as to allow law and accountancy firms to practice there. It is believed that the establishment of British Universities in India would help meet the high demand for higher education (The Telegraph, 2011). The purpose of this relationship is to exchange knowledge and technology that can both benefit the two nations and can help the growth of mutual trade and investment.
Although the relative regulation has not passed yet, it actually can give investors more confidence. Hence, we suggest Sainsbury’s can start with supplier business and prepare for establishing supermarket someday when the timeliness is rape for it. Furthermore, it will benefit Sainsbury’s to own more competitive advantages in the future.
4.1 Entry modes of Sainsbury
There are several modes that the multinationals can apply, such as joint venture, mixed venture with the government and take part in privatisation. However, as mention above, there are various regulations making the joint venture the only possible mode. There are both advantages and disadvantages regard with joint venture.
4.1.1 Advantages
From ownership aspect, it can reduce the capital of investment since local government accounts for 51% and organization owns 49% share. This can decentralize the risk and save the capital because this model can substantially reduce risks of being subject to nationalization or other types of adverse government interference.
Another benefit is Sainsbury take the advantage of partnership in terms of original channel, reputation, knowledge, technique and existing system. For example, Sainsbury’s can share local knowledge and marketing experiences with local partner, such as management system, skills, language and culture that are necessary for competing in India. Moreover, the local company can help to handle many issues with local government, such as labour dispute, environment and union issues.
4.1.2 Disadvantages
Nevertheless, this entry mode also is facing several shortcomings, such as the multinationals are easy to lose control over the technology, unable to engage in global strategic operation, and easy to lead to conflicts over goals and objectives.
Because of India’s restrictive commercial laws, instead of operating as a retailor, Sainsbury’s can only form an alliance with domestic conglomerates to undertake wholesale-only operation, such as outlet, cash-and-carry wholesale stores, before the government loosen its restriction over this field.
4.2 Wholesaler advantages in India
Sainsbury’s is good at developing own brand product in UK. And, some India enterprise start to realize the advantages of own-brand, such as decrease unites costs and enhances customer loyalty. The market orientation of Sainsbury’s is upper class level in the retailer or wholesale areas, and the main customer group is targeted at middle class and even higher. Moreover, in terms of the consumer behavior is rapidly changing in India; some tend to seek for the high-quality product with low price and the brand name. Thus, it successfully increases the market demand of the own brand goods of Sainsbury’s. In sum, Sainsbury’s can adopt high-end and differentiation strategy via private label for increasing competitions in market (GMID, 2011 & Key note, 2011).
4.3 Localization
Kerala state is chosen as the best location for Sainsbury’s subsidiary because of the optimal investment environment and considerable population of middle class.
From the investment environment perspectives, in addition to the well-constructed infrastructure, the education popularization, universal health insurance is the highest across India and as well. The average income in local around $1,040, and the economic growth rate around 13.5 % and high level of FDI ($2.6 billion) between 2000 and 2008. Retailer, tourism, education, IT and IT service are main industries there. Literacy rate is 90% of local residents, and it has a widely influence of making people to accept a concept of higher quality food and other product. (Ministry of economic affairs of ROC, 2010)
The follow table gives more information in terms of competitive advantage by Porter’s diamond.
Table4: competitive advantage on Kerala state
Factor endowment
Educated population rate higher than other state in India
Developed natural resources and agricultural environment
Well Infrastructure
Demand condition
Increasing awareness of brand and food quality in south India.
People have well educated and higher consumption capacity
Health food is excepted to become important to urban consumers
Relating and support industries
Generate spillover effect due to flourishing farming industry
Develop rapidly in Service industry
Firm strategy, structure, and rivalry
Increasing rivalry including local and international enterprise, e.g. Hindustan Unilever, Nestlé
Export-oriented food industry in local enterprise
Sources: GMID, 2010
Moreover, according to OLI analysis in previous sections, it can substantially reduce threats if Sainsbury’s invest in Kerala. For example, the skill of food manufactory and infrastructure are superior to other places in India. The local government intends to build advanced transportation network to link with other big cities. It can release the stress of food spoil, and it will cover a greater region in south India for Sainsbury’s. Furthermore, high degree of education is the key to implement Sainsbury’s strategy (i.e. quality product and own brand).
4.4 Marketing strategy
When Sainsbury’s run business in India, its high quality reputation will be able to opportunity on it marketing activities, on the other hand, cultural differences will be a risk. To utilize the opportunities and manage the risk, target marketing strategy and localization strategy might be useful (Salomon, et al., 2009). For example, Sainsbury’s high quality reputation is its competitiveness, so if it focuses on quality sensitive Indian customers it can make clear discrimination with competitors. Also, localization of products, promotion and price is also important for Sainsbury’s to success its business in India. For example, over 80% of people are Hinduism and they do not eat beef and many people are vegetarians (Hill, C. W. L, 2011). About the population, young age structure (0-14 years) is 30.5% and it is higher than U.K. and it might affect its offering products promotion (Central Intelligence Agency, n. d.).
4.5 Human resources management
Superior human resource management (HRM) can be a sustained source of high productivity and competitive advantage in the global economy (Hill, 2011). There are three types of staffing policy. According to the International Business, if Sainsbury’s use the global standardization policy, it has two advantages which use HRM efficiently, and build a strong culture and unofficial management networks (2009). However, it still has some disadvantages, such as high cost, and limitation from national immigration policies. When Sainsbury’s invests in India, it needs to estimate the consumption ability and business performance of India, and then to calculate initial personnel cost which has to accordance with local regulations and culture, to carry out with Sainsbury’s organization chart recruitment. There are two stages of recruitments (see Table 1).
Table5. Strategy of recruitments
Strategy
Advantage
Disadvantage
Short term
Internal recruitment
External recruitment
Part time recruitment
To build human resource database
Have more time option and retention talents
High cost of HRM
Lack talents
Expatriate failure
Middle and Long term
To train staff
Cultural training
Practical training
Compensation
Department rotation
To develop international view
To decrease culture myopia
To improve local responsiveness
Training and relocation costs increase
Need a higher compensation structure
Source: HRM, n. d.; International Business, 2011
As can be seen from the above table, the short term illustrates that internal recruitment is the fastest method for HRM, but it does not have any assist to build a new HR database in India. At the beginning of the investment, Sainsbury’s needs to spend high price for HRM (HRM, n. d.). After this stage, training staff is very important, because it can get some benefit such as developing international view for employees which will cost a lot than before. Sainsbury’s needs to consider this point and makes a balance about the cost.
 

Sainsbury’s: Competition With Other Supermarkets

J Sainsbury: What will it take to make it ‘Great’ again?
Contents (Jump to)
Introduction
Key Figures
Products and Services
Quality and Quantity
Analysis
Conclusion
Bibliography
Introduction
The food and grocery retail sector is the United Kingdom’s largest employer, supplying 11% of all jobs in the UK, totaling in excess of 2.8 million people (IGD, 2004a) in a market that generates £123.9 Billion in sales (IGD, 2006b). This traditionally British company dominated industry has been changed through the acquisition of ASDA by giant retailer Wal-Mart in late 1999, which then was the third largest supermarket with 229 stores and sales of £8 billion. Wal-Mart’s entry into the UK food retailing sector and their low pricing retailing concept sparked a round of ‘full-scale food price wars’ as it embarked upon its strategy of gaining immediate market share increases (BBC News, 2001). This development represented a less than desirable market instance for J. Sainsbury’s, which at the time of the Wal-Mart invasion was number two in the UK market behind Tesco (BBC News, 2001).

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In fact, the troubles at Sainsbury’s were in progress before Wal-Mart’s entrance into the UK market as it lost its position as the number one food retailer to Tesco in 1995, and since ASDA’s acquisition by Wal-Mart the company has slide into third place (Food Business Review online, 2005). This examination shall seek to look into the overall United Kingdom supermarket industry as it relates to the large chains and identify factors acting upon as well as in it that have reversed the fortunes of Sainsbury’s from an internal as well as external standpoint. The question that said examination will endeavor to answer is “What will it take to make Sainsbury’s Great again?”
The aim of this examination is to delve into the market forces, conditions, competitive influences and impacts within the United Kingdom grocery retail sector to gauge what has transpired since Sainsbury’s occupied the number one position in the market and why it has been supplanted. The historical perspective will provide an overview of how the market has changed from a consumer, competitive and internal standpoint of Sainsbury’s marketing, and market strategic planning and thus attempt to identify what the company either missed or failed to respond to with regard to the conditions that resulted in its losing significant market share and thus its leadership position.
The objective is to uncover the salient and noteworthy market and competitive forces, inroads, developments and circumstances that enabled Tesco as well as ASDA to pass Sainsbury’s for the number one and two spots in the United Kingdom and what strategies, developments, changes and other factors which Sainsbury’s will need to consider and or implement to begin reclaiming significant market share.
Key Figures
As of October 2006 the Taylor Nelson Sofres study, which is also known as the TNSofres Superpanel, of the United Kingdom grocery retailing market showed the following (Answers.com, 2006) (Wikipedia, 2006):
Table 1 – UK Grocery Retailing Market Share 13 August 2006

Name of Chain

Market Share

Tesco

31.6%

ASDA

16.6%

Sainsbury’s

16.0&

Morrisons

11.0%

Table 2 – UK Grocery Retailing Market Share 2 January 2005

Name of Chain

Market Share

Tesco

29.0%

ASDA

17.1%

Sainsbury’s

15.9%

Morrisons

12.5%

Somerfield

5.5%

Co-op

5.0%

Waitrose

3.6%

The foregoing indicates how much Sainsbury’s has slipped since the early 1990s when it was the undisputed market leader. An examination of accounting data for the company and or its competitors indicates that there is noting in this aspects that affects or has affected the abilities of the firms to either operate or obtain an advantage. The importance of market share, translates into customer traffic, the all important variable in generating sales.
Products and Services
The change in the UK grocery retiling sector to a more price competitive structure eroded Sainsbury’s advantage the existed prior to 1995, and the resulting price wars heated up with Tesco responding to the Wal-Mart / ASDA discounting strategy along with Safeway and Morrisons, which Sainsbury’s failed to respond to when this development hit the market (Food Business review online, 2005). This important misstep compounded consumer defections and eroded market share. Sainsbury’s heavy investment in private label brands did not provide the needed hedge as the consumer market shifted away from this prior initiative as they started buying lower price brand names offered by competitors (TNS, 2000). Another important factor in the decreased market share, which is a function of low store traffic is that Tesco, ASDA as well as Morrisons built or expanded to larger stores thus providing them the opportunity to stock non-food items thus making their locations more convenient for one-stop shopping (Just Food, 2002). Sainsbury’s Savacentre format represented a subsidiary operation rather than a central format whereby it could not compete with the competitors’ number of stores in this format.
The trend of grocery retailers into non food areas was not just a Wal-Mart innovation, as Carrefour also had moved in this direction. One stop shopping represents convenience for consumers, and this along with loyalty cards, big stores and lots of extras are what today’s more demanding consumer looks for, wants and expects.
The preceding understandings as to the developments the occurred over time in the UK as well as in international grocery retailing segment are important to understanding not only what has happened to Sainsbury’s, but what it missed in terms of market developments and what it needs to concentrate on to return to its former greatness.
Quality and Quantity
Diversification has been the key to success for Tesco as well as ASDA in that their non-food items such as clothing, electrical items, appliances for the kitchen, soft toys and ceramics allow them to not only attract customers, it permits them to operate on lower margins in their food operations thus increasing the difficulty for Sainsbury’s (Food Business review online, 2005). The preceding diversification strategy represents the means via which Tesco as well as ASDA overtook Sainsbury’s, and thus indicates the path the company must take to not only hold its ground, but make up for lost customers. The preceding strategy permits these companies to offer a larger selection of items as a customer draw. The quantity of offerings represents a distinct advantage.
The qualities of products as well as the environment in which they are sold are important points in attracting customers as well as keeping them, and is equal among competitors. Sainsbury’s 2005 Annual Report recognizes the preceding as the company stated “Our vision for Sainsbury’s is all about delivering great quality food at fair prices.” (Sainsbury’s, 2005). The company is committed to the importance of the low price position with regard to the UK market and has made this a center piece in its restructuring strategy (Sainsbury’s, 2005). In recognition of the importance of customer convenience, the company is expanding its non food mix which “… includes items such as cards, gift-wrap, music and DVDs, and which for most customers are now a part of the weekly grocery shop” (Sainsbury’s, 2005). In this same vein, Sainsbury’s adds “Where space allows we will also sell clothing and home ware …” and continues “We see a clear opportunity to grow sales by developing our non-food offer …” (Sainsbury’s, 2005).
Analysis
Key to understating where Sainsbury’s and the grocery retailing sector market is today, is understanding where it was yesterday and the events that led to the company’s decline. The supermarket wars are nothing new as are the minor developments that signal competitiveness. Price cutting discounters were in the marketplace as far back as the late 1980s, yet Sainsbury’s continued to gain market share in spite of this (BBC Online Network, 1999). Tesco’s successful bid for supermarket chain William Low in 1994 provided it with a presence in the Scottish market, but does not represent a singular event that aided in its surpassing Sainsbury’s in the marketplace. In addition, Tesco introduced a highly successful marketing campaign, as well as its loyalty card well in advance of Sainsbury’s, which helped it to improve upon customer loyalty and repeat store visits (BBC Online Network, 1999). Other developments included Tesco’s “… own label discount lines, as well as supermarket bank accounts (BBC Online Network, 1999). Correspondingly, Sainsbury’s 1994 Annual Report indicated that their prices were 3% below the other large chains (Sainsbury’s, 1994, p. 4), however this in and of itself did not counter Tesco’s more customer centric marketing strategies which increased customer loyalty and attracted new ones.
By 1995 it was official, Tesco had achieved the status of the number one grocery retailer. And while Sainsbury’s also operated Savacentre hypermarkets which sold a broad array of goods, including clothing, the company’s focus on expansion into the United States through its acquisition of the Giant food retailing chains and modest opening of 20 new U.K. stores ran contrary (Sainsbury’s, 1995, pp. 10-12) to Tesco’s focus of expanding in the large store multi product mix format in the U.K.
Table 3 – UK Annual Grocery Retailer Sales 1998 – 2000
(TNS, 2000)
% Share

Chain Name

1998

1999

2000

Sainsbury’s

19.8

19.5

18.9

Tesco

22.5

23.0

23.9

ASDA

13.9

14.4

15.6

Safeway

10.2

10.3

9.9

The SWOT analysis of Sainsbury’s reveals:

The Sainsbury’s name and reputation represents a strong advantage and strength for this British company serving its domestic market as well as the fact that it has learned the lessons and importance of non-food items, larger stores and customer loyalty programs from the successes of its rivals which it has implemented in it restructuring strategies (Sainsbury’s, 2005).

The company’s weaknesses are its lack of superstores to match the strength of ASDA and Tesco who are and have benefited from the increased number of non-food items these types of locations can carry and the lost customers the company must win back.

The well known format of pricing has been inoculated into the company’s structure through cost cutting and paring down personnel, thus putting it in the position to do battle on this front. In addition, the proven successful strategies in internal operations as well as winning customers as learned from rivals provides it with the position and structure to now attack these areas. Opportunities exist in the acquisition of key superstores from other smaller competitors as well as a strategic acquisition.

Continued discounting, and new superstores by the company’s competitors represent its biggest threats as well as the potential acquisition of smaller chains by rivals to increase their store placements.
A Porter’s Five Forces analysis of Sainsbury’s reveals the following:

Tesco and ASDA hold market share leads over Sainsbury’s, and their size, strength and placements in the market provides them with a strong positioning that the company must not simply match, but exceed in order to gain market share from them as well as smaller firms. The high rivalry in the industry makes the preceding proposition difficult as the format is based on pricing for which there is little room to maneuver.

The threat of substitutes is low as the extremely high cost of entry owing to real estate, store and other relationships rules out new players in the market except through the acquisition of existing firms. In addition the high degree of managerial savvy to operate in this environment represents another inhibiting factor.

Buyer power is strong in that the stores in this sector control to a great degree their supplier relationships through long standing agreements or out right ownership and control.

Supplier power is weak as a result of the number of competitive firms in the market all having long established existing relationships. Changing to new firms means an intense round of cost cutting measures to either replace or fit in with the chains supplier structures.

Barriers to Entry and Threat of Entry

The barriers to entry in this industry sector are represented by the extremely high cost of either starting up, acquisition and securing qualified management and store manager talent. The threat of entry is extremely low for the same reasons. In addition, the market is full of top line players thus making it improbable that an outside firm would be interested in entering this extremely tough competitive environment.
Conclusion
What it will take to make Sainsbury’s great again is the continued commitment by management and employees to surpass the service levels offered by its rivals as the company has already embarked upon the immediate and long internal, location and non-food formats that have proven successful for competitors. The all important ingredient in the entire strategy and marketing mix is the customer, as pricing and product mix are keenly watched, modified and adjusted by all competitors to either maintain parity or achieve it. Store layouts, modern designs, non-food items, convenience, location and size are all key aspects of the company’s plan as contained in its Annual Report to achieve market position gains by 2008 (Sainsbury’s, 2005).
These things being equalizers in terms of the company putting its facilities and locations on a par with competitors is not enough, in and of themselves, as the key to the industry sector are its customers and their weekly shopping habits and needs. Sainsbury’s must forge an increased personal relationship with its customers in terms of product selections, quality, locations, convenience and deft utilization of customer relationship management to identify spending and shopping patterns and craft unique loyalty programs that respond to individual customer preferences, needs and desires. In an industry with little to differentiate one firm from another, the difference is in the interpersonal relationships and contact with a company’s staff that spells an advantage. Friendliness, personable, helpful and most of all key customer relationship management to present offers, are factors that appeal to customers.
Despite all of the investment in facilities, stock and the like, the grocery retailing industry is a service industry, as such is the most important front via which to attract, retain and increase store visits. All of the facility designs, stock and related aspects go with this formula, but, it is the customer shopping experience that is the key to winning their attitudes.
Bibliography
Answers.com (2006) ASDA. Retrieved on 25 November 2006 from http://www.answers.com/topic/asda
BBC Online Network (1999) Business: The Company File, A tale of two supermarkets. 12 April 1999. Retrieved on 26 November 2006 from http://news.bbc.co.uk/1/hi/business/the_company_file/317325.stm
BBC News (2001) UK poised for supermarket wars. 28 August, 2001. Retrieved on 25 November 2006 from http://news.bbc.co.uk/1/hi/business/1512847.stm
Just Food (2002) UK: Food retailers lead the way in product, store innovation. 22 July 2002. Retrieved on 26 November 2006 from http://www.just-food.com/article.aspx?art=50664&type=1
Food Business review online (2005) UK supermarkets: diversify or die. 5 April 2005. Retrieved on 26 November 2006 from http://www.food-business-review.com/article_feature_print.asp?guid=F7002651-4884-4DDA-BE2C-CAE9A7C11D3C
IGD (2004a) Employment in the Food & Grocery Industry. Retrieved on 25 November 2006 from http://www.igd.com/CIR.asp?menuid=146&cirid=1433
IGD (2006b) UK Grocery Retailing. Retrieved on 25 November 2006 from http://www.igd.com/cir.asp?menuid=51&cirid=114
Sainsbury’s (1994) Annual Report. Retrieved on 26 November 2006 from http://www.jsainsbury.co.uk/files/reports/ar1994.pdf
Sainsbury’s (1995) Annual Report. Retrieved on 26 November 2006 from http://www.jsainsbury.co.uk/files/reports/ar1995.pdf
Sainsbury’s (2005)Annual Report. Retrieved on 25 November 2006 from http://www.j-sainsbury.co.uk/ar05/files/report05.pdf
TNS (2000) Sainsbury’s Case History. Retrieved on 267 November 2006 from http://superpanel.tns-global.com/superpanel/Library/retailer_casehist_sainsbury.asp
Wikipedia (2006) TNS Superpanel. Retrieved on 25 November 2006 from http://en.wikipedia.org/wiki/TNS_Superpanel
 

Tesco and Sainsbury’s: A Comparison of Strategies

1. Introduction
Business strategies are largely unique to individual business organisations and depend upon the objectives of their primary stakeholders, namely the shareholders and the senior management. While these two entities are the main decision makers for the road maps followed by firms, which they exercise through formulation and articulation of objectives, mission statements, and strategies, many other issues like product or service features, strengths and weaknesses of business organisations, economic, legal and political environments, nature and intensity of competition, opportunities and threats, environmental and ecological needs, as well as technological advances, often play major roles in determining and implementing business strategy. Work in these areas, by management experts, have led to the development and construction of models and theories that attempt to elaborate, explain and demystify these issues. The tackling of these challenges previously depended upon the thought processes and ingenuity of business owners, and played vital roles in the successes or failures of business organisations. The work of Igor Ansoff and Michael Porter led to the enunciation of well known strategic models for growth and the Five Forces theory for analysis of competitiveness. These tools, as well as decision making aids like SWOT and PESTLE analyses have become commonplace in today’s business scenario, and are widely used by managers all over the world. While most growth strategies deal with marketing, other areas like production, human resource, information technology and finance also need goal setting, and are important to overall strategy for optimisation of organisational wealth. Total Quality Management, for example has emerged in recent years as a necessary item in every strategic manager’s toolbox for achievement of organisational objectives. Apart from these tools, business strategies for growth and shareholder wealth appreciation are also influenced by the ethics and value systems of individual corporations; while many firms chose to forsake both growth and profitability for ethics, the reverse, as evinced by scams like Enron and WorldCom is equally true.

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Every so often, companies in the same industry, and operating in the same national or global environment, adopt sharply different strategies with spectacularly divergent results. Search engines like Yahoo and Alta Vista existed for years before Google arrived on the scene and swept everything before it. Toyota, a Japanese car manufacturer, formed much after the end of the Second World War, entered the car market of the United States in the face of widespread scepticism, and over a few decades, orchestrated a business strategy that saw it overtake Ford, the iconic American car making giant. Among British companies, the last two decades saw the rise and rise of the retailing company, Tesco. The company changed its down market “pile them high, sell them cheap” public perception to emerge as the largest retailer in the country, first overtaking the much older market leader Sainsbury’s and then proceeding to widen the gap until its’ market share was twice that of its erstwhile condescending rival. This assignment aims to examine and analyse the different strategies adopted by these companies, which have similar products and services, and also operate in the same environment.
2. Commentary and Analysis
Business organisations constantly face challenges in every sphere of activity, be they in marketing, sales, production, workforce, human resource management, information technology development, or in raising and controlling finances. Many of these challenges arise from the social, political and economical environments in which organisations operate. While businesses in the UK operate in democratic and market friendly environments with institutionalised legal and financial systems, they need to conform to the stipulations laid down by numerous regulatory bodies (of the UK and the EU) and governmental organisations, and that too in almost all operating areas. Furthermore, firms with global operations have to frequently function in conformity with different environmental requirements, necessitated by dissimilar political and legal systems, or by widely divergent local, infrastructural or market conditions. Sainsbury’s and Tesco’s both entered the UK retail market, as small convenience stores, not much different from the many such establishments that exist all over the UK. Both organisations outgrew and outperformed other businesses in their genre to become colossal retailing chains with countrywide presences. Sainsbury’s, a much older firm than Tesco’s was the market leader in the UK retailing sector, until 1995, when it was overtaken by Tesco’s.
a. Sainsbury’s
J Sainsbury, plc, is one of Britain’s most famous firms, represented across the country, through its chain of supermarket stores that operate under the Sainsbury’s brand. Apart from supermarkets, the company operates convenience stores, an internet-based home delivery shopping service, and Sainsbury’s Bank. The company, originally started as a partnership in 1869, and while incorporated as a private company as far back as 1922, listed on the London Stock Exchange only in 1973, in what was until then the LSE’s largest stock issue. Sainsbury’s grew to become the UK’s largest supermarket company and retained its privileged position for much of the twentieth century. Tesco’s overtook Sainsbury’s in 1995, and ASDA/ Wal-Mart relegated it to third position in 2003. (J Sainsbury, 2007)
While the business, in the beginning, grew organically into a chain of convenience stores, its first major strategic decision came, in 1950, with the opening of the first self service store, in Croyden, London. This initiative was followed by increasing the number of self service stores, expanding the range of non food goods, opening of hyper markets, acquisition of smaller chains, and commencement of operations in Scotland and North Ireland. The company grew to become the country’s largest supermarket chain, fuelled by increasing economic affluence, changing buying habits, customer convenience, and the ability of Sainsbury’s to provide a large and diverse range of products under one roof. Large Sainsbury’s stores typically stock 50,000 products, of which 50% are home brands. While the company grew slowly in its initial years, real growth came only in the post war years, with the development of a strong market economy, economic prosperity, increased spending power, and customer desire for a large range of better quality goods. Sainsbury’s responded to this changed economic environment, by concentrating on the increasing and upwardly mobile middle class. The company refrained from taking too many risks or initiatives, possibly feeling that its reputation would enable it to grow steadily and retain market leadership. The strategy of least resistance was interspersed by a few initiatives like the introduction of Do it Yourself (DIY) products, and acquisition of chains like Bell’s Stores, Jackson’s Stores, and JB Beaumont, which served to add to and broaden its customer base. The company has more than 750 stores today, and with a turnover in the range of 16 billion GBP, is one of UK’s more successful corporates. A prima facie assessment regarding the company’s response to business and environmental challenges would tend to give credit to the company’s corporate strategies in an extremely competitive business environment.
This assessment would however be substantially incorrect. Even as the company continued to grow steadily, in both profits and sales, through the 1990s and into the 21st century (except for the difficult years of 2004 and 2005), it was overtaken, first by Tesco’s in 1995, and later by ASDA in 2003. Tesco’s , which had a turnover of less than 11 billion GBP in 1994 saw its sales touch 38 billion GBP in 2006 and now sells more than twice of what Sainsbury’s does. Very apparently, Sainsbury’s has committed serious errors in handling and responding to business and environmental challenges, and has yielded the high ground in supermarket retailing to younger and possibly more effective competition.
b. Tesco’s Growth Path
Tesco’s started off as a small one man grocery operation, in 1919, in London’s East End. It took Jack Cohen, the founder, 10 more years to start his first store, in 1929, a full 60 years after Sainsbury’s. The company grew organically in the initial years, spurred by Cohen’s hard work. In the beginning business strategy revolved around providing cheap and economical goods, (pile them high, sell them cheap) espousal of trading stamps to induce customers, and relentless opening of new stores. Strategies, broadly similar to those followed by Sainsbury’s in the post war years led Cohen to open Tesco’s first self service store in 1947, and the first supermarket in 1956. In retrospect, Cohen’s better understanding of the demands and changing moods of customers is possibly evinced by his decision to open his self service store, a full three years earlier than Sainsbury’s.
When Cohen resigned, in 1977, the company had achieved significant growth and traction but was still much behind Sainsbury’s, both in size and reputation. The years that followed Cohen’s handing over of Tesco’s leadership were marked by strategic swings designed to take the company away from its image of a purveyor of cheap and low quality goods. This period saw the management launch an aggressive campaign for market share, a multi dimensional effort that involved (a) rapid expansion of stores, (b) acquisition of medium sized supermarket chains, (c) entry and consolidation in a number of foreign markets, (d) large scale expansion of non food products, (e) opening of a number of hypermarkets, (f) introduction of loyalty cards, and (g) exploitation of online markets. The company assessed the existing national and global environment and felt that it would be able to work towards significant increases in sales and profitability and make it into a global leader from its status of a lowly down market UK based retailer. These strategies, combined with effective systems and operational implementation, enabled Tesco’s to power past Sainsbury’s, the British market leader, and establish itself as the third largest retailer in Europe. With sales of 38 billion GBP and 2 billion GBP in profits, Tesco is today the undisputed market leader, way ahead of both Sainsbury’s and ASDA. It played for glory and won hands down. (Pringle and Cohen, 2007)
c. Management of Environmental Conditions
In the early 1960’s, Cohen lobbied Parliament to have the Retail Price Maintenance (RPM) act abolished, efforts supported by Edward Heath. The RPM allowed manufacturers and suppliers to set the price of goods thus preventing large retailers, who could buy in bulk and had greater buying power, from benefiting from economies of scale and undercutting the prices of smaller shops. To get “around” this, Tesco offered another incentive to get customers through the doors – Green Shield Stamps. These were collected by customers when they spent money in the store, and were then traded for goods in a catalogue. An effective discount (Tesco, a corporate profile, 2004)
This extract serves to illustrate Tesco’s response to environmental challenges and the many innovative ways the company found to constantly improve customer value. The emergence of Thatcherism, in the 80s, coupled with the break up of the Soviet Union, the consolidation of a unipolar world, sharp improvements in internet technology, and the commencement of globalisation, created a number of opportunities that Tesco was quick to spot, grab, and exploit. The company closed down 500 stores, revamped and modernised hundreds of others. Store formats like Tesco, Tesco Express, Tesco Metro, and One Stop, catered to distinct sizes, products, and locations, and ranged from small street corner shops to huge all inclusive supermarkets. The company was quick to realise that its image as a purveyor of cheap products, with its perceived down market connotations, would not help growth in a society that was rapidly becoming richer, and did not hesitate to close down its coupon scheme. In a brilliant segmentation exercise, the company created three product categories, good, better, and best, across most of its product lines. While this enabled customers to access different price ranges, it also allowed the company to access an “inclusive” and huge market. Sainsbury’s, which had traditionally catered to the middle class clientele with zealously protected margins, tried to enlarge its product base, but was unable to make any headway, because of its lesser supplier base and inferior logistical capability. (Pringle and Gordon, 2007)
Tesco’s introduced customer loyalty cards in 1995. While it took Sainsbury some time to catch up with the idea, the two companies used it for widely divergent aims. Even as Sainsbury’s used the cards primarily to drive repeat visits and purchases, Tesco’s processed the information feedback from the loyalty card customers, to assess customer demands and needs, and keep on adding to its product range. The company also foresaw the potential of the internet and globalisation, and established profitable online sales channels, as well as successful overseas forays. Tesco’s international business now accounts for nearly 25% of company sales, and the immediate priority is to drive it up to 50% of company revenue. Apart from maintaining strong market leadership, Tesco is now focussing on two major areas that are propelling the company’s growth and increasing the gap between the company and its competitors. Its aggressive growth in the non-foods market means that it is possibly selling more clothes than Next and more health and beauty products than all the others put together. (Hunter, 2006) The company has set up base in numerous countries in Europe and Asia and should soon have a significant presence in the USA. “Indeed, some 60% of Tesco’s floor space is now based outside of the UK.” (Hunter, 2006) Sainsbury’s, on the other hand has been too busy handling its inadequate stocking mechanism, half empty shelves, and falling market share, to be able to pay much attention to new thrust areas, and opportunities, made available by changes in environmental conditions and advances in technology. (Tesco, a corporate profile, 2004)
3. Conclusion
While this analysis does not intend to eulogise Tesco’s management practices, or its planned and meticulous exploitation of available opportunities, the stark difference in the working of Tesco’s and Sainsbury’s tend to make any comparative analysis of strategy, and management practice, enormously one sided. Even as Tesco was using feedback from its loyalty card scheme to add enormously to its product range, Sainsbury’s was trying to adamantly protect its margins and cutting down on service quality, practices that inevitably led to further customer dissatisfaction and loss of market share. It was not until 2004, a full 9 years after Tesco overtook it, that the company realised that its major problem lay in under stocked shelves, inadequate logistics and poor supply chain management. While Sainsbury’s strategy appeared to be one of risk avoidance and slow growth, in reality it proved to be akin to that of an ostrich in the face of danger. The company however still remains a respected and successful retailer. Recent initiatives, taken after a change in top management, have seen a priority shift and led to revived sales, reduced costs and improved profitability. The company has its heart in the right place and contributes a much higher percentage of its post tax profit to charity than Tesco.
The tremendous success of Tesco, in assessing customer needs and environmental opportunities, came about because of a new aggression that evinced itself after the departure of jack Cohen and is an indicator of the possibilities that exist for Sainsbury. The fact that Tesco lagged behind Sainsbury’s until 1995 is proof of the levels to which Sainsbury can aspire without being impractically optimistic. Sainsbury’s has a number of strengths, namely its goodwill in the UK market, access to enormous amount of shop space and property that have been built up over the years, very strong domain knowledge in the retailing business, and adequate capital resources. The company has also become active in the online segment, the fastest growing market segment in the retailing market. It however definitely needs to scan the environment constantly, look for new opportunities, upgrade technology, and be more fleet footed in responding to opportunities and challenges.
Both the companies have seen rapid departures from existing strategies after changes in top level management. Strange as it may appear, changes in management appear to have been critical to Tesco seeing opportunities that were not explored earlier. Sainsbury’s too has commenced implementation of measures that should have logically been done much earlier, only after a change of guard at the top. The solution to the paradox possibly lies in realising that management theories, practices and strategies, in most cases, become relevant only if the CEO thinks them fit. The boss is the key.
Bibliography
Annual report and Financial Statements, 2006, J Sainsbury plc, Retrieved April 3, 2007 from www.j-sainsbury.co.uk/ar06/fullfinancials/notestofinancialstatements5.shtml
Annual Review and Summary Financial Statements, 2006, J Sainsbury plc, Retrieved April 3, 2007 from www.j-sainsbury.co.uk/ar06/summaryfinancials
Cavazza, M, 2007, Sainsbury’s bid ‘is very close’, thisismoney.co.uk., Retrieved April 3, 2007 from www.thisismoney.co.uk/investing-and-markets/article.html?in_article_id=418580&in_page_id=3
Cole, R, 2007, Sainsbury’s progress offers reason to hold even if no bid comes, Times Online, Retrieved April 3, 2007 from business.timesonline.co.uk/tol/business/industry_sectors/retailing
Hunter, H, 2006, Revolution in the British aisles: why Tesco will continue to rule the roost, msn.money, Retrieved April 3, 2007 from money.uk.msn.com/Investing/Insight/Special_Features/Markets_Comment/article.aspx?cp-documentid=1054991
J Sainsbury, 2007, Wikipedia, Retrieved April 3, 2007 from en.wikipedia.org/wiki/J_Sainsbury
Jordan, D, 2007, Tchenguiz adds to Sainsbury stake, Times Online, Retrieved April 3, 2007 from business.timesonline.co.uk/tol/business/industry_sectors/retailing/article1578864.ece – 2 Apr 2007
Pringle, H, and Gordon, W, 2007, The Tesco Story, customerserviceworld.com., Retrieved May 27, 2007 from www.ecustomerserviceworld.com/earticlesstore_articles.asp?type=article&id
Tesco, 2007, Retrieved May 25, 2007 from www.tescocorporate.com/page.aspx?pointerid=A8E0E60508F94A8DBA909E2ABB5F2CC7
Tesco, A corporate profile, 2004, Corporate watch, Retrieved May 27, 2007 from www.corporatewatch.org.uk/?bid=28
 

Financial Analysis of Sainsburys | Tesco Comparison

The
past, present and future of J Sainsbury PLC
Introduction
In this report we aim to present and evaluate the past, present and future of J Sainsbury plc. The report will hold information for potential investors, who can then use this information for their own analysis, in order to decide whether they will be investing in the company. J Sainsbury PLC was founded in 1869 and falls under the supermarket sector. Since 1869 Sainsbury’s has continued to grow and has become one of the largest supermarkets in the UK, with a current market share of 16.9%. Sainsbury’s has been affected by supermarket stores such as Lidl and Aldi, who offer products at a discounted price. Sainsbury’s has consequently lost customers to these stores and therefore seen a decrease in profits. However, Sainsbury’s leading competitor is Tesco PLC, therefore the main comparison throughout the report will be made between J Sainsbury PLC and Tesco PLC. Both Sainsbury’s and Tesco’s main business comes from grocery sector, however both companies have additional businesses such as insurance and their own brand of clothing (Sainsbury, 2016).

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The Capital Structure of J Sainsbury PLC
Raising capital is an essential part of any firms’
operations and there are two main ways through which businesses raise capital, that
is either from debt or equity financing. The capital structure of a firm is the
term used to describe the proportions of debt and equity financing that a
company currently holds. A key model within the capital structure concept is
‘Pie Theory’, which states that the total value of a firm is equal to the sum
of its market value of debt and its market value of equity. These two sources
of finance combine to form the total value of a firm, or the total ‘Pie’.
Therefore, if an organisations aim is to make their business as valuable as
possible, then they must choose a debt-equity ratio that results in the ‘Pie’
being as big as possible. There are two categories of capital structure that a
business can be labelled as. It is either an ‘unlevered firm’, which means that
the firm is financed by equity only, or it is a ‘levered firm’, which is a firm
financed by debt only, or by both debt and equity.
Table 1: Fiscal data as of March 12th 2016 of Sainsbury PLC Balance Sheet figures
Note: Adapted from Sainsbury PLC, Financial Times, 2016
You can clearly see from Table
1 above (Sainsbury PLC, Financial Times, 2016) that Sainsbury PLC is a ‘levered
firm’ in terms of its capital structure as the company uses both debt and equity
financing to raise funds. From March 2014 the company has reduced its total
debt by £371m in three years to a total debt figure of £2,413m in March 2016.
Also you can see how the majority of Sainsbury’s total debt from all the three
years is made up of long-term debt, which is debt that does not have to be paid
back within 12 months. It is clear that Sainsbury PLC management have made a
strategic decision to build up more long-term debt instead of short term. One
likely reason is because long term loans are viewed as a safer method of
accumulating debt because the firm will have a longer time frame to pay back
the debt. Sainsbury PLC are also more likely to raise larger amounts of capital
when taking out a long term loan as opposed to a short term loan, as well as
likely to get lower interest rates. The table also illustrates how Sainsbury
PLC has increased their total equity by £362m from 2014 to 2016 where total
equity is £6,365m. This means that according to the ‘Pie Theory’ the firm has a
‘total value’ of £8,778m at March 12th 2016. I have illustrated this
figure in the chart below compared with the previous two years.
Chart 1: ‘Pie Theory’ charts for Sainsbury PLC
Note: Calculated from data in Table 1
From the data shown above you can see how Sainsbury’s
management have decided to arrange the companies’ liabilities and organise their
capital structure. The key point to recognise in Chart 1 is that the firm’s
capital structure is clearly more reliant upon equity than debt. It seems that
management have made a strategic decision to use equity as their main source of
raising finance while simultaneously reducing the company’s total debt. The
reason for this could be because ever since the ‘Great Recession’ of 2007 many
banks have decided not to lend to companies with already high levels of debt,
as these companies are seen as riskier investments and given the current
economic climate banks, as well as other lenders, have become much more
cautious. As a result, companies like Sainsbury have decided to cut back on
their long-term debt and become more dependent on steady sources of finance.
Table 2: Ratios for Sainsbury PLC
Note: Ratios calculated from data in Table 1
Table 2 above shows a number
of ratios that allow for greater analysis of Sainsbury’s capital structure. The
figures show that Sainsbury’s has a debt to equity ratio of 0.3791 in 2016. This
is a fairly low value and so it seems the company is not being funded largely
through debt. This is a positive for the firm as a low debt to equity ratio
safeguards the company from bankruptcy in case Sainsbury’s suddenly begins to
experience cash flow or income issues. A low debt to equity ratio also allows Sainsbury’s
to have more leverage when negotiating for loans in the future and is a sign
that the firm is healthy and expanding. Table 2 also shows low debt to capital
and long term debt to capital ratios. This again is an indication that
Sainsbury’s seems a healthy business that does not depend upon debt as its main
tool of raising finance. These ratios are strong indicators that the firm is a safe
and reliable choice for potential investors however the figures must be
compared with those of rival companies for a more reliable analysis of
Sainsbury’s financial structure. Below I have replicated the same data for
Tesco PLC as I did for Sainsbury’s so that a fair comparison could be made of
Sainsbury’s capital structure with one of its closest rivals.    
Table 3: Fiscal data as of February 27th 2016 of Tesco PLC Balance Sheet figures
Note: Adapted from Tesco PLC, Financial Times, 2016
Chart 2: ‘Pie Theory’ charts for Tesco PLC
Note: Calculated from data in Table 1
Table 4: Ratios for Tesco PLC
Note: Ratios calculated from data in Table 3
The data above allows us to
take the information we already have on Sainsbury PLC and put it into some
context. Firstly, if you look at Chart 2 you will see a stark contrast of
Tesco’s capital structure when compared to Sainsbury’s. Although Tesco PLC is
also a ‘levered firm’ just like Sainsbury’s, it is clear that Tesco is much more
reliant upon debt financing. Chart 2 shows that in 2016, debt financing made up
61.08% of Tesco’s capital structure whereas in the same year, debt financing
made up only 27.5% of Sainsbury’s total capital structure. This figure is less
than half of Tesco’s and similarly Sainsbury has amassed £10bn less in total
debts in the year ending 2016 than Tesco PLC, this is apparent if you look at
the 2016 figures in Table 3 compared to Table 1. Another key point to notice is
that Tesco has much higher debt to equity ratio, long term debt to capital
ratio, and debt to capital ratio than Sainsbury PLC. This further supports the
conclusions made previously that Sainsbury’s has a very low ‘leverage’ ratios,
and compared to Tesco PLC is in a far more secure and risk friendly financial
situation than its competitor.
Dividend Policy
According to Sainsbury’s 2016 annual report, their board of
directors aim to provide a dividend policy that is affordable to the business,
and their current policy has a dividend cover that is “fixed at two times the
underlying earnings for 2015/16” (Sainsbury,
2016).
The organisation pays dividends to its shareholders in order to “remain focused
on building shareholder value” (Sainsbury, 2016).
Sainsbury’s pay out cash dividends to shareholders, which
are paid out in two separate payments. The first payment is the interim
dividends, which is paid in December/January, (Sainsbury, 2016) and the final
dividend for the year is paid in July (Sainsbury, 2016). For the year 2015/16,
the suggested final dividend is 8.1 pence per share, which along with an
interim payment of 4 pence per share, will make the full year dividend 12.1
pence (Sainsbury, 2016). When comparing this
proposed dividend to previous years, there has been a decrease of 8.3% since
2014/15 and a substantial decrease of 30% since 2014/15. This decrease is
likely to be a result of their change in policy, which is aimed at trying to
“boost their balance sheet” (Jefford, 2015) and to help fund their price cuts, as
they are faced with competition from discount stores (Jefford,
2015).
Sainsbury’s also offers shareholders a ‘Dividend Reinvestment Plan’. This is a
“specially arranged share dealing service” (Sainsbury, 2016) which allows shareholders to “reinvest
their cash dividends in the company’s shares” (Sainsbury, 2016).
The date in which dividends are recorded and paid will have
an effect on the share price of the organisation. The share price will decrease
on or around the date of the ‘Ex-dividend date’. This is because any shares
purchased after the ‘ex-dividend rate’ is not eligible to receive the next
dividend that is being paid out. Sainsbury’s ex-dividend date was on the 12th
of May in 2016. The share price for Sainsbury’s was 263GBX on the 11th of May, and this decreased to 252.50
GBX. This price decrease is roughly the same amount of the next dividend.
Liquidity Ratios
Liquidity ratios measure the competence of a company and
the company’s ability to settle debt. The short-term liquidity ratios are
concerned with current assets and current liabilities in view of Sainsbury’s financial
position over a short term period (twelve months). The current ratio measures
the number of times that current assets cover current liabilities. The greater
the current ratio the more beneficial it is for Sainsbury’s, as this signifies
how Sainsbury’s can allow more current debt in the short term period. However,
for the past five years Sainsbury’s current liabilities have exceeded their
current assets, as shown in the table below. This means Sainsbury’s are not
meeting their short term debts. This can cause problems for Sainsbury’s as
creditors look for high current ratio’s as this shows high liquidity (Hiller, Ross,
& Randolph, 2013). In comparison, Sainsbury’s competitor
Tesco shows how over the past 3 years they have maintained having greater
current assets than current liabilities. In the eye of creditors, it is much
more likely that Tesco would gain credit over Sainsbury’s. It is very unusual
for a company as large as Sainsbury’s to have a negative net working capital
however, it is critical to state that a low current ratio doesn’t necessarily
mean Sainsbury’s is going to become bankrupt (Hiller, Ross, & Randolph,
2013).
Sainsbury’s have claimed how they believe that their current liabilities will
lessen a great amount in their 2016 yearend (Morgan, 2016).
The Quick ratio is very similar to the to the current ratio
however, inventory is not classed as a current asset as inventory is often the
least liquid. Therefore, inventory is taken out of the quick ratio calculation.
Looking at both Sainsbury’s and Tesco’s quick ratio values for the past five
years it is clear how Tesco have a much greater closing inventory at the year
end when comparing to Sainsbury’s. In Addition, it is more likely for companies
that fall under the ‘Supermarket’ sector that their inventories become obsolete
as some of their produce can become waist if their ‘sell by date’ passes. For
Sainsbury’s, the fact that they have little closing inventory is beneficial as
they haven’t overestimated much on sales and products, meaning they have less
inventory waste comparing to Tesco.
Long-term liquidity ratios look at how Sainsbury’s are meeting long-term debt obligations. Total debt ratio illustrates the company’s financial position and how the company pay back long term debts. Sainsbury’s debt ratio has been increasing for some years, in 2015 it is at its highest where for every £1 asset they are in debt £0.64 therefore, their £0.36 in equity (Hiller, Ross, & Randolph, 2013). In comparison, Tesco have a much lower debt ratio for all years meaning they hold a lot more equity in their assets than debt.

Efficiency Ratios
Efficiency ratios show how much a company is making use of
their assets and liabilities to create income for the company. The Inventory
days is calculated by taking the inventory turnover ratio dividing the number
of days in the year by that figure. When looking at Sainsbury’s inventory days
they have maintained a steady number of days which they take to turn over the
inventory in the past three years. Whereas Tesco have seen a decrease over the
past three years in which the number of days it takes for them to sell all
goods. This is a good factor for Tesco as this shows sales have been increasing
over the past three years. Regarding Sainsbury’s results as at 2015 this is
neither a good or bad thing, as it doesn’t show a decrease in sales yet no
increase either. The ratios show how Sainsbury’s have a better control and
understanding over their inventory levels on average over the past three years
compared to Tesco. However, it has recently been reported that Sainsbury’s
inventories days have increased to 22 days, meaning sales are slowing down for
Sainsbury’s for the first two quarters of 2016 (Guru, 2016).
The receivable days illustrate how long it can take on
average to gain outstanding credit from sales. The ratios show how Sainsbury’s
find it less time-consuming to collect credit from trade receivables for each
year in the past three years compared to Tesco. These ratios show how
Sainsbury’s on average in the past three years have received all money from
trade receivables in 6.2 days and not had to pay trade payables for 45.7 days.
This meaning that Sainsbury’s could continue being deprived of money.
The Asset Turnover expresses how the company is

Profitability Ratios
Return on capital employed determines how efficiently the capital is used, the greater the ROCE of a company means the capital is being used more effectively. Sainsbury’s has used their capital to their benefit in 2013 and 2014, but in 2015, it is very low. This indicates that Sainsbury’s is not employing its capital effectively and is not generating shareholder value. That is because the profit before tax is -£72 million in 2015. This is almost a 93% decrease of the profit from 2014. A reason for this could be how Sainsbury’s have spent a lot of money regarding their administrative expenses in 2015 comparing to their previous years (£1132 million in 2015, £444 million in 2014 and 462 million in 2013) (Sainsbury, 2016). Therefore, the operating profit margin has a huge decrease in 2015. In comparison with Tesco, Tesco has excellent use of its capital, increasing to 26.13% in 2015, almost a 43% increase. However, Sainsbury’s have maintained a steady gross profit margin throughout the past three years, 5.08%, 5.79% and 5.48% respectively. On the other hand, Tesco’s gross profit margin has decreased in 2015, which is almost a 50% decrease from the previous year. The ratios show how Sainsbury’s will be having more profit from each sale. However, regarding profitability Tesco’s will have better liquidity than Sainsbury.

Gearing Ratios
Gearing ratio indicates the financial risk of a company.
The higher the gearing ratio represents the high percentage of debt to equity.
Sainsbury past and present gearing ratios have always stayed relatively low;
the gearing ratio can be classed as low if it stays below 50%. These ratios
indicate that there is lower risk to the company. On the other hand, Tesco gearing
ratio has faced a massive increase in 2015, this isn’t good for Tesco as they
are now at a high financial risk.          
“Interest coverage ratio is used to determine how easily a company can pay for their interest expenses. When the company has interest cover ratio lower than 1, in order to meet the difference or borrow more, the company have to reserve some cash, because if is lower in a single month, it will be meet bankrupt” (Investopedia, 2016). In 2014 and 2013, Sainsbury has good interest coverage ratio that is 6.82 and 6.17 respectively, but in 2015, it drops to 0.6. But for Tesco the interest cover rises in 2015 comparing with previous years. From the above results, it can be said that Tesco are in a better position to pay their interest expenses due to their greater profitability.

Share Price movement
Sainsbury’s
is a large contender in the grocery stores market, Sainsbury’s hold a 16.9%
share of the supermarket sector in the UK (Lansdown, 2016). With its main
competitor being Tesco. Although due to the downturn of the British economy,
and the increasing popularity of discounted grocery stores such as Lidl and
Aldi, this has led to a decrease in sales, which therefore influences
Sainsbury’s shares.
The sector average for
the price earnings ratio is 22.6, whereas Sainsbury’s p/e ratio as of March
2016, was 11.29, this is almost half the sector average. In 2015 Sainsbury’s
dividend yield was 6.68%, whereas their competitors such as Morrison’s had a
dividend yield of 7.60%, compared to Tesco which was 0.50%. This shows that
Sainsbury’s were doing well in 2015. 
Sainsbury’s dividend yield has fluctuated in the last 5 years, and
peaked in 2015, although in the same year net asset value per share fell to its
lowest of 271.64p (Stock, 2016). Profits in 2015
were down compared to previous years, and the earnings per share had dropped to
-8.70p in the same year.
This table shows the
share price for both Sainsbury’s and its two-main competitor Tesco and
Morrison’s (Sainsbury, 2016). This shows that there has been
fluctuation throughout the last 5 years, but shows that there has been a slight
and steady drop of share prices in these years, and that the percentage change
for all three companies is a minus figure. Sainsbury’s -20.64%, Tesco -46.95%,
Morrison’s -30.94%. This shows that Sainsbury’s has the least movement in
percentage change, whereas Tesco are almost double of what Sainsbury’s, this
shows that things aren’t looking too good for Tesco throughout the past couple
of years, Tesco are now seen as ‘old’, whereas Morrison’s haven’t been as big
as they are now (Aldi, 2014).
States that in 2014 Aldi had a 4.8% market share, and the increasing popularity
of this company, and others like it, this market share is likely to see an
increase and in 2015 Aldi and Lidl’s market share had increased to 10% (Guardian, 2015). That’s an 5.2%
increase in just 1 year.
Other factors relating to J Sainsbury plc for a potential investor
Sainsbury’s have many things planned for the future, that
may be of interest to potential investors. One very recent thing is the “Parent
company of big 4 retailer Sainsbury’s has confirmed its acquisition of Home
Retail Group is now complete. This means that as of today, J Sainsbury is one
of the UK’s biggest retail companies.” Home Retail group owned retailers such
as Argos and Habitat. This would be extremely enticing for investors as
Sainsbury’s is the “UK’s Second biggest supermarket” (Armstrong, 2016).The company is working to integrate the
two companies into their stores as part of a strategy over the next few years.
Sainsbury’s used to have a clothing range, at the cheap end
of the spectrum, however in September 2016, they decided to launch a new
“Premium Fashion Range… The range will cost more than previous budget
offerings, but will seek to represent the value that supermarkets depend on” (Stevens,
2016)
.I believe this is important to potential investors as a premium fashion brand
at prices people can still afford has great potential to make the company and
investors a lot of money. Another thing Sainsbury’s are doing that is
attractive to potential investors is how ethical they are as a company. For
example, they recently introduced a trial period of “Slow shopping” in certain
stores. This was an initiative designed to help elderly customers and customers
with mental disabilities like Autism. This shows the company cares greatly
about its customers, and as a business they want to be ethical. Ethical
companies tend to attract more customers as customers know they are buying from
a good company. The increase in customers will be attractive to investors as
they can earn them more money. Sainsbury’s have also announced the “Second step
in its waste less, save more campaign, investing £1m into towns and cities
across the UK to cut back on food and waste” (Baldwin, 2016) .In 2016,
“Sainsbury’s is to fight back against amazon with a one hour grocery delivery
service in London” (Butler, 2016) . Innovation like
this will attract investors as not many other retailers offer this, proving
there is potential for money to be made from this.
Sainsbury’s recently “Poached Poundlands boss Kevin
O’Byrne, to be its new chief financial officer, despite the discount retailer
Chains New South African Owners offering him £2.7m to stay on” (Armstrong,
2016) Another recent reshuffle of management at Sainsbury occurred when “Shop
Direct has poached Sainsbury’s head of technology Jon Rudoe for a newly created
role as it merges its retail and IT terms” (Bowden, 2016) .This is important
to potential investors, because some investors may have believed that Jon Rudoe
was good in the role he was at within Sainsbury’s, and the fact that he has
left, could potentially cause investors to be put off.
Prediction of J Sainsbury plc performance in the near future
I think that Sainsbury’s performance in the future will be
okay, however there are some areas where the retailer will need to improve for
it to perform better. It is still the “UK’s second biggest Supermarket” (Butler, 2016).The largest retailer
in the UK currently is Tesco, and by quite some margin. Their market share is
around “28%” (Butler, 2016). Despite them being
the second largest supermarket in the UK, as we discussed earlier in the essay,
over the past three years, Sainsbury’s current assets have been exceeding
current liabilities, meaning they are failing to meet their short-term debts.
If they want to perform well in the future, they will have to start meeting
these debts. This is not the main way to perform well however it is necessary.
With Sainsbury’s constantly innovating with the launch of their premium fashion
brand, and one-day delivery service, the future does look bright for
Sainsbury’s as these two things should drive sales, increasing profits. Also,
“Sainsbury’s has revealed its first quarterly sales growth in more than two
years” (Butler, 2016). This rise occurred
in the first quarter of 2016, so if things continue, especially with the
acquisition of Home Retail Group, they should be looking to continue this
growth in future quarters into 2017.
Conclusion
From studying Sainsbury’s, it is clear that the company is
in a healthy position in terms of its financing and is considerably less
dependent on debt as a source of raising finance than its nearest competitor
Tesco. Sainsbury’s share price has fluctuated throughout the past 5 years,
along with their competitors, due to a troubled economy, and the introduction
of discounted supermarkets such as Aldi and Lidl. With the expansion of
discounted supermarkets, Sainsbury’s and its main competitors, Tesco and
Morrison, could see their future share price and market share decrease, or
remain stable and not increase. It seems clear that Sainsbury’s is and will
remain a safe option for investors in the near future. Although the firm’s
growth has slowed down in recent years it is still a very profitable business
and I think it is a ‘safe bet’ for potential investors in part because of how
little it relies on debt financing and how it has a much lower level of
long-term debt than some of its main competitors.
References
J
Sainsbury PLC, SBRY:LSE profile – FT.com. (2016). Markets.ft.com.
Retrieved 9 December 2016, from https://markets.ft.com/data/equities/tearsheet/profile?s=SBRY:LSE
Tesco
PLC, TSCO:LSE financials – FT.com. (2016). Markets.ft.com. Retrieved 9 December 2016,
from https://markets.ft.com/data/equities/tearsheet/financials?s=TSCO:LSE&subView=BalanceSheet
 

Sainsburys human resources strategies analysis

This report focuses on Sainsbury’s human resources strategies regarding its recruitment and selection, Training and development, Diversity and Performance management.
The report determines that the organization uses HR policies which will be beneficial for the organization development, improving their level of customer service and using this as an instrument to increases its sales. In the organization growth all the stakeholders as well as employees will get benefit..
The purpose of this report is to focus on issues involved in the HRM (human resources management), both from the existing theory as well as practise.
HRM comprises of various issues right from the recruitment-selection, training and development of employees in organization and employee diversity provided by management.
STATEMENT OF PURPOSE
Consider an organization you are familiar with and with reference to associated theory and practice critically asses the approach that is taken to strategic HRM. Evaluate the extent to which the approach has contributed to the organizational effectiveness.
INTRODUCTION
John Storey (1989) defined HRM as ‘Set of interrelated policies with an ideological and philosophical underpinning’.
Storey (1995) defines HRM as ‘a distinctive approach to employment management which seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce, using an array of cultural, structural and personnel techniques’.
(Golding, N (2004) cited in Beardwell, I. et al 2004) HRM has no defination in the literature, yet the organisations is giving more importance to the strategic role of human resource management. HRM has been identified after some research as strategic aspects of ‘best-fit’ or aligning people to the needs of organisation and other has identify HRM as means of improving organisation performance.

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People are increasingly viewed as being the most important resource in contributing to an organization’s overall capacity and success in achieving corporate goals. Thus human resource management is a vital component of the strategic decision making process. Managing human resources comprises a range of issues such as recruitment and retention, employee development, reward schemes and promoting good relations with and between employees, which are arguably the basic HRM functions. Recruitment lays the groundwork for obtaining suitably qualified employees in order to contribute to achieving corporate goals in an efficient and cost-effective manner, (Foot, M & Hook, C 1999).
For HR to succeed it must take on a proactive role within the organisation. Strategic HR creates value by providing opportunities for organic learning, development of intellectual capital and enhances core competencies. This value is crucial to the organisation’s future success (Mullins, L 2005). Employers are increasing extorting the best possible performance from employees. Best practice will increase the skills of the current workforce, and with recruiting it will reinforce the culture of a highly skilled work force (Mullins, L. 2005). Strategic HRM has gained both credibility and popularity over the past decade, specifically with respect to its impact on organisational performance (Paauwe, J & Boselie P. 2003).
STRATEGIC HUMAN RESOURCES MANAGEMENT means expressing and performing human resources policies and practices that grow the employee competencies and behaviours the company needs to achieve its strategic goals. New strategic required employees with the skills, knowledge and inspiration to run the new programmed plant. Strategic human resource plan involved detailed guidelines about what skills and knowledge the workers required, as well as how to recruit, test, select and train the new workers. Human resources managers are now days involved in associating with their top managers in both planning and executing their companies’ strategies. Human resources managers must express their departmental plans so that they can focus more on competitiveness and operational improvements.(hrm book pg-13)
COMPANY PROFILE
Sainsbury is a superstore which operates its business in retail sector.
In 1869, Sainsbury was started by James and Mary Ann Sainsbury’s in UK. It has many branches located throughout the country selling different range of products. Sainsbury control a much centralised Human Resources policy in which all decisions are taken by top management. The main objective of Sainsbury is to meet customer needs successfully and provide investors with good financial return. Sainsbury aims are to provide all colleagues right opportunities to develop their skills and are well rewarded for their contribution to the success of business.
Sainsbury brand is built upon providing customers quality product at fair prices. Sainsbury store have a particular emphasis on fresh, healthy, safe and tasty food and continues launching new product for the customers.
Sainsbury supermarkets employ 150000 colleagues and with above 19 million customers are visit stores each week. Sainsbury offer many products such as food, grocery and other household products.
They sell other brand name products as well as Sainsbury brand product, which are often cheaper than other brand names.
1. RECRUITMENT AND SELECTION AT SAINSBURY
Flippo’s definition: “It is a process of searching for prospective employees and stimulating and encouraging them to apply for jobs in an organization.”
Read more: http://www.articlesbase.com/college-and-university-articles/class-notes-human-resource-management-872443.html#ixzz17V947AZ3 
Under Creative Commons License: Attribution
Job analysis provides information about what the job and what human characteristics are essential to perform these activities. This type of information which is in the form of job description and specification help managers to decide what kind of people to recruit. (hrm book pg130)
Purpose and Importance of Recruitment
Control the present and future requirements in combination with personnel planning and job analysis activities
 Rise the pool of job candidates at lowest cost
 Help growing success rate of selection process by dropping number of under-qualified or over-qualified applications. 
 Reduce the possibility that job candidates once selected would leave shortly
 Meet legal and social duties 
 Identify and prepare potential job candidates 
 Estimate effectiveness of various recruitment techniques and sources for job applicants. 
( http://www.citehr.com/195611-recruitment-selection-full-details.html#ixzz17XBWnmwh)
Sainsbury offers large numbers of job opportunities available in different stores. They looking for people with good customer skills and job are available in clerical, stockroom and technical. Flexible contract, term time contracts and dual contracts offer colleagues to work on hours basic. Job opportunities are advertised on in-store job board, in local newspaper and at job centre plus. Sainsbury opening new supermarkets and local and central stores in many towns creating job vacancies in advance, Sainsbury recruit staff two or more months before in order to allow staff training.
RECRUITMENT FOR GRADUATES
Sainsbury recruit around 100 graduates’ colleagues every year and more than 70 works within stores. Graduates recruitment is conducted online at Sainsbury graduate recruitment website. Graduates are trained in all aspect of store management under trainee management scheme. Under this training period they will work in all areas of store and later doing their jobs under manager supervision.
Work experience
Sainsbury offers students to visit store for the part time job. These jobs are organised at a local level. Students who need work experience letter work in different department during their particular period of time.
SAINSBURY SELECTION PROCESS

The first method that Sainsbury’s use is collection curriculum vitae’s(C.V) and letter of Applicant.
Sainsbury would then shortlist candidate and is done by recruitment manager. This shortlist of candidate is done to meet the requirement of the company that they looking for, right person for the right job.
Interview stage. Interview is the main stage of selecting applicants. A number of planned question are designed to crisscross candidates knowledge. An interview allows candidates to represent well for the selection. It will get to know who is good at paper and those who have communications skills.
Suitable person who best suit according to the company requirements that they looking for is selected for the job.

2. TRAINING AND DEVELOPMENT
(Beardwell, I et al 2004). Training may be defined as a deliberate process to achieve effective performance from employees by changing their attitudes, behaviour, knowledge and skills through various activities. At work, training developed employees to accomplish organisation future and present needs. Therefore training changes the attitudes, values and organisation culture which is used as a tool.
Training means giving new employees opportunity to develop skills to perform their job well. Develop skills by means showing new salesperson how to sell products, or a new superior how to stop the firm’s weekly payroll sheets. It might involve simply having the existing job holder explain the job to the new hire. Training is the symbol of good management, and the task that managers overlook at the risk. Having high-skilled employees doesn’t promise they will succeed. Instead, they must know how you want them to do it and what you want them to do. If they don’t they will create nothing productive at all. (hrm book pg-298)
IMPORTANCE OF TRAINING AND DEVELOPMENT
Development of human resources- training and development creates an opportunity to develop human resources technical and behaviour skills.
Growth of skills of employees- it helps in growing skills and knowledge and overall personality of the employees.
Productivity- it helps in increasing the productivity of the employees that help the organisation in achieving its goals.
Healthy environment- creates healthy work environment to build good relationship among employees and help in achieving organisation goals faster.
It helps in improving organisational development i.e. organisation get more active in decision making and problem solving.
Financial gain through higher efficiency in process and innovation of products and strategies are increased.
Team spirit – it helps in developing the employees to work in teams, team spirit, and inter-team relationship. It helps in inculcating the zeal to learn within the employees.
Organisation culture – it helps in developing and improving organisational cultures and success. It also helps in making the learning culture within organisation.
Quality – work-life and quality of work is improved with the help of training and development.
Training and development helps in developing several aspects that successful workers and managers usually display like motivation, leadership quality, loyalty and better attitudes.
Healthy work atmosphere – training and development helps in making the workplace healthy. It helps in building good relationship among employees so that organisation goals can be achieved easily.
(http://traininganddevelopment.naukrihub.com/importance-of-training.html)
AT SAINSBURY’S
INITIAL TRAINING
At the beginning of their training period all new trainees are given a general overview of the organisation and clear understanding of their rights and responsibilities.
Trainees undergo a general introductory training programme during the first eight week of their employment period. Under this programme, introduction of the company is given on the day one and is followed by intensive programme of training covering various aspects like safe working practise, food safety, law, store security and customer care. During trainee introduction period, series of modular workbooks is provided to them that they have complete. Through the preliminary training all trainee are accessed as they progressed are their performance dictate whether or not they will be offered permanent employment.
STAFF DEVELOPMENT
We provide everyone right opportunity to develop their skills and knowledge so that they perform well in their jobs.
All colleagues have a Performance Development analysis to discuss their career development with their managers, measure their progress or training needs at least once a year.
For evaluation training and development and plan for the future, we have career development committee’s team in each area of business.
Various types of training approaches are used like course, workshops, mentoring, qualification, self-development books and videos.
PURPOSES OF TRAINING AT SAINSBURY’S

For increasing profit as well as achieving company’s objectives it is necessary to have well trained staff.
Makes workforce the workforce more flexible
Job satisfaction

The performance of the workers would be improved and therefore the brand image of the company and employees will feel better and more comfortable if they are trained beforehand. The employee would reach their potential and the business will be profiting as well as the employee.
SENIOR MANAGEMENT TRAINING
Senior management training is focused to meet the business and individual needs. Through promotion, external recruitment and training, senior management capabilities can develop.
Through running training courses Sainsbury aims to achieve specific benefits and training needs restructuring if these benefits are not achieved.
Training and development helps Sainsbury to improve quality and service and therefore productivity can be raised. Training increases the individual motivation and creates flexibility around the workforce.
INVESTORS IN PEOPLE (IIP)
IIP is a national standard supported by the department for education and skills.
Corporate Investors in public was achieved by Sainsbury became the first food retailer to achieve this. This followed a three-year programme involving 450 assessment covering 13500 Sainsbury colleagueship recognition is a unique achievement that gained from the bottom up rather than the top down. Almost every unit that makes up Sainsbury supermarket went through the process individually.
Company that has been recognised by IIP is capable in adopting and implementing its four fundamental principles:-
Promise to improve all employees to achieve business goals and targets;
Regularly reviewing training and development needs in the context of the business;
Taking relevant action to meet training and development needs throughout People’s employment;
Evaluating outcomes of training and development for individuals and the Organisation as a basis for continuous improvement.
(http://www.learnbusiness.co.uk/agcse/unit2/sainsburys/Training%20and%20Development%20Programme.pdf)
3. DIVERSITY AT SAINSBURY
Organisation growth and competitiveness depends upon its ability to hold diversity and realize its benefits. When an organisation actively implements diversity plans various benefits are reported such as:
Benefits of diversity
By employing a diverse workforce employees from different background bring individual aptitude and new ideas which are flexible in adapting to fluctuate markets and customer demands.
A various collection of talents and experiences (e.g. languages, cultural understanding) allows a company to deliver service to customers on a global basis.
A diverse workforce that feels happy expressing varying points of opinion provides a larger pool of ideas and understandings. The organization can take ideas from that pool to meet business strategy needs and the needs of customers more successfully.
Diversity at workplace inspire all employees to perform to their highest ability resulting in higher productivity and profit.
(http://www.diversityworking.com/employerZone/diversityManagement/?id=9)
In 2004/05, Sainsbury’s introduced a diversity management website on internet. This site was introduced to guide about managing faith and belief, disability management and guidance on local commodity recruitment. The site is planned to help all colleagues gain more awareness of other people needs.
We talk about equality and diversity policy at training to all colleagues and deliver written guidance to managers on equal opportunities and recruitment of disabled colleagues. In 2004/05, Sainsbury started using ‘Disability Confident’ which is a new means of learning to benefit colleagues in our stores move beyond disability awareness to become more confident in dealing with disability.
Colleagues can report discrimination or harassment through our fair treatment and complaint procedure. Sainsbury began to develop plans to target older workers. It introduced retirement plan pension protection mechanisms. Full payment is received if anybody recruited until their 65th birthday.
In application form age has been removed and it’s requested for monitoring purposely only. Mixed age workforce has led to improved customer satisfaction by perfectly reflecting the profile of their customer.
Sainsbury’s diversity and equality policies are an important part of their business plan. All diversity and equality are anticipated to ‘add value’ to improve both customer services and sales.
Flexibility in covering holidays has improved as different religious festivals are spread out across the year. A calendar of religious festivals has been produced and displayed in stores.
(Sainsbury’s case study from age positive campaign)
( http;//www.efa-agediversity.org.uk/case-studies/index.htm
Employers’ forum on age case studies of employers who have adopted approaches based on the principles of age diversity)
4. PERFORMANCE MANGEMENT
Performance management as a process “that unites goal setting, performance appraisal, and development into a single, common system whose aim is to ensure that the employee’s performance is supporting the company’s strategic aims”. Performance management measures the employee’s training, set the standards, performance appraisal, and feedback relative to how the employees performance should be and is contributing to achieving the company’s goals.(hrm book pg-338-gary dessler)
Performance management therefore never just said meeting with the subordinates once or twice a year to “review your performance”. It means setting goals that makes sense in terms of the company’s strategic planning. It means daily interaction with subordinates to ensure continuous improvement in the employee’s ability and performance. And it means ensuring that the employee has the training he or she needs to perform the job. (HRM book pg-338-gary dessler)
Benefits of performance management
It brings the organisation in placement with its goals and reduces the time it uses to make strategic changes by communicating the change through a brand new set of goals.
It creates an amount of clearness in understanding the targets and control management improves and is flexible to management wants.
It make sure that all workers are treated equally as the assessment are built primarily on the results offered by them. It changes the effort from activity orientated to result orientated.
It creates an amount of transparency in understanding the targets, develops management control and is flexible to managements needs.
( http://www.pcissue.com/the-importance-of-performance-management/)
At Sainsbury
Performance Management is very important at Sainsbury’s. Sainsbury’s achieve the performance of its employees effectively so as to remain competitive in the market. Various methods are used at Sainsbury’s to know how well individual employees doing their responsibility and for the managers to be able to observe how well they are carrying out.
Performance monitoring offers information which is of value for identifying future training or promotion opportunities and areas where inadequate skills or knowledge could be judged as a threat to an employee’s efficiency.
Managers exercises control at organisation and individual level through:

Development by planning objectives and targets
creating performance values
perceiving actual performance
Comparison against actual performance and targets
adjusting mistakes and taking action

Goals of Management
The goals of management in which the performance of the individual and Sainsbury’s is frequently being measured against objectives and targets which have been fixed by managers and employees.
Objectives at Sainsbury’s are determined through discussions between managers and employees. This technique will involve both a top-down and a bottom-up style.
The manager at Sainsbury’s presents the corporate objectives and the individuals and team members then state what they feel can be achieved. The goals are more expected to be effective if they are:

Specific
Measurable
Agreed
Realistic
Time-related

CONCLUSION
“The role of HRM is fundamental in strengthening the organisation’s capability, and Maximising everyone’s potential right across the business” (Sainsbury website)
The human division of business and partners with every business is driven by human resource at Sainsbury’s to make sure that employee development strategy is associated to convey the business goals. Sainsbury uses HRM strategy to develop its financial position; it has used new recruitment and selection tactics to give job opportunity to large number of people and selecting the best candidate for the right job through selection process.
In every organization it is important to have a right person for the right job. Recruitment and Selection plays a major role in this situation. Use of new technology is putting considerable pressure on how employers Recruit and Select staff. The process of Talent Acquisition is to discover the sources of manpower to meet necessities of the staffing programme and to effective measures for attracting that manpower in adequate numbers to facilitate effective selection of efficient personnel.
Training and development strategy improved the employee skills and knowledge so that they perform their responsibility effectively. The attitude of the workers would be improved and therefore the image of the company and employees will feel better and more relaxed if they are trained well. Sainsbury’s take care of its employees by means of retirement plan and free medical facilities.
Sainsbury’s considers diversity as a major driver of innovation, creativity and development. Sainsbury using ‘Disability Confident’ which is a new learning means to help colleagues in our stores move beyond disability awareness to become more confident in dealing with disability. Sainsbury’s believe that having diverse workforce express various innovative ideas and understanding. Organization can take ideas to meet business strategy needs and the needs of customers more successfully. Diversity at workplace motivates all employees to perform to their highest ability resulting in higher productivity and profit.
Performance management is very essential for Sainsbury’s. Various method are used to know if employees doing their job effectively. There are also specific training programs for managers at all levels in the organization.
RECOMMENDATION
I would suggest to Sainsbury’s introduce some new products which will give to a company a comparative advantage over their challengers.
Sainsbury’s would be an opening of local shops located in the city centre rather than on the outskirts of the city. Customers frequently choose local shops rather than supermarkets to save time and money if they do not need large purchase, because undoubtedly in large stores often they purchase more than actually have planned.
At Sainsbury’s, human resources management is the most important department.
To understand if Sainsbury are competively compared to their rivals, they need to compare their prices of product with that of rivals. A way of finding out rival’s information is by going undercover. A member of the Sainsbury staff could visit rivals supermarket like Asda, Tesco and note the prices that are charged for the same product that Sainsbury selling.
If the prices is cheaper for that particular product that Sainsbury selling then Sainsbury’s have to cut down the prices for that particular product. If the prices are higher at Tesco than Sainsbury for that product, are ahead in competition over Tesco.
The human resources management department at Sainsbury’s control the workforce and see how they perform. A poor workforce in terms of lazy workers could result in low output.
Mayo’s theory, working in team is virtually important for Sainsbury’s and creates friendly environment which can increase company’s profit.
The human resource department get the workforce and main problem after that is keeping them happy. Rivals may look for Sainsbury’s existing employees by offering them better pay and promotion. The HRM department at Sainsbury’s should be more alert of this problem and may offer their employees more pay and promotion in order to keep existing employees.
If promotion or better pay offered to employees then he/she would feel important to business. HRM needs to safeguard that Sainsbury employees right quality and quantity workers.
HRM department at Sainsbury’s have to plan in advanced, if a manager is leaving in near future than advance planning for recruitment, interviewing and selection is important in order to safeguard department not to get suffered and business not to be affected by a member of staff leaving.
Maslow theory, pay may have something to do with the employees being dissatisfied.
At Sainsbury’s, if labour turnover is high, then is regarded as a failure by the HRM department. If labour turnover is low then is regarded as a success by the HRM department. To analyse absenteeism rate is also important. HRM seeks to ensure that absenteeism is low. High absenteeism caused lack of commitment, poor motivation and poor management by the HRM.
Bibliography
Foot, M. & Hook, C. (1999) (2nd edition) Introducing Human Resource Management Pearson Education Limited, UK
Beardwell, I. et al. (2004) (4th Edition) Human Resource Management a Contemporary Approach, Prentice Hall, Harlow
Mullins, L (2005) (7th Edition) Management and Organizational Behaviour
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(http://www.diversityworking.com/employerZone/diversityManagement/?id=9
( http;//www.efa-agediversity.org.uk/case-studies/index.htm
Employers’ forum on age case studies of employers who have adopted approaches based on the principles of age diversity. ( http://www.pcissue.com/the-importance-of-performance-management/
http://www.learnbusiness.co.uk/agcse/unit2/sainsburys/Training%20and%20Development%20Programme.pdf