SWOT analysis of Sainsbury’s Plc.

Table of contents

Sainsbury’s is the third-largest store chain in UK and 80th placed in FTSE 100 companies with market capitalization of 5,457.35 million. The essay employs SWOT analysis to assess the strengths, opportunities, weaknesses, and threats in relation to its strategy and operations in the UK and international markets with reference to its retail business. The strengths and opportunities of the company should be used to neutralize the weaknesses and to develop a competitive strategy against the threats that are identified as facing the organization.

Introduction

Sainsbury’s is a UK-based company whose core operation is a retail business in food and non-food products and services. The company’s portfolio of investments includes property management, energy services, financial services such as banking and clothing. Sainsbury’s also runs six food colleges where they train their staff. The successful operations of the company have enabled it to be in the FTSE 100 list at position 80, making 21 million transactions weekly, on both traditional and online platforms. It has the seventh-largest “TU” clothing brand among over 5000 own or improved brands of products of food and non-food items and a range of over 30000 products sold in its stores countrywide and internationally. The organization generated? 22943 million in the 2010/11 financial year and employs over 150000 staff in its 934 stores spread across UK(Sainsbury’s Annual Report, 2011). The essay will look at the strategies that the company uses in its operations and how its business environment favors or impedes it from succeeding in its objectives and goals.

SWOT analysis is a tool that is used to understand the position of an organization in relation to its operating environment. According to Griffin(2011), SWOT analysis is particularly useful in strategy formulation, which essentially entails how the company allocates its resources in all its operations to achieve its objectives. SWOT analysis assesses strengths and opportunities that an organization has and how it strategizes itself to overcome its weaknesses and threats in its operating environment. Thus, the strengths and weaknesses of an organization are internally focused while threats and opportunities are external forces to an organization. Regoff and Bezos (2007) noted that SWOT analysis is useful in understanding the competitive position of an organization in the market. While the tool offers no magic wand to an organization in succeeding in the market, it offers an opportunity to organize and understand itself in terms of strategy and resource allocation.

Strengths

Diversified Investments

These are identified resources or abilities of an organization that has and is known to be successful (Brennan, 2009). Sainsbury’s has diversified individual business units that are not correlated. This enables it to minimize risks in case any one of the business units runs a loss or event that may threaten its anticipated performance (Carel, 2008). However, Jones (2008) argues that diversification in itself is not enough in minimizing risks but the choice of quality investments that are guided by insightful and informed market analysis.

IT infrastructure

The organization recognizes the importance of reaching a wider market through the affordable and wide platform of the internet. Through the online checkout system, the organization in its grocery business increased sales by 20% or 130,000 weekly orders in the financial year 2010/11. It runs a promotional strategy, Clicks and Collects in over 160 stores where customers buy online. The convenience store enabled the company to earn revenues exceeding 1 billion, making it to be recognized as Convenience Retailer of the Year by Retail Award Industry.

Large capital investment and wide outlet network

In the 2010/11 financial year, Sainsbury’s increased its supermarket space by 15.9% after opening 21 new stores, additional 24 extensions, and a further 47 stores, which translates to 1.5 million square feet. This enables the organization to reach its customers fast in many areas, hence increasing market share. The company also operates store outlets in China.

Quality human resource

The store chain understands the importance of human resource management and invests heavily in the quality training of its staff. It has a staff training college that admits 10000 of its colleagues annually. As a result, the organization was gold accredited by Investors in People due to its role in improving the quality of human resources. Quality staff provides superior services to customers hence increasing customer satisfaction.

Opportunities

Wide market

The company opened stores in China, which is a fast-growing economy and has a huge population Beijing, where it opened its store outlets has the huge working population to provide a market for the company’s wide range of products. This is in addition to the store outlets it operates in the country. With increasing supermarket space, the company reaches potential customers.

Performing economy in UK and China

Food prices that have a huge impact on inflation are fairly stable, ranging from 4 to 6%, a sign which indicates the performance of the economy and affordability of the food commodities (Wood, 2012).ChinaandUKare the second and sixth largest economies that translate to the high purchasing power of customers in the respective countries.

Threats

Competition

Competition from major companies in the business such as Tesco on price might compromise profitability and market share of the company. Carrefour, Wal-mart, and Tesco have similar business operations in China (Wachman, 2010).

Prone online platform

Cyber-attacks that led to significant losses in its online strategy are also potential threats to the company that has invested a lot in the infrastructure as a means of reaching a wide client base (Information Age, 2004). Computer malfunctioning also pose potential threat to the company, as was the case in 2010, which affects operational efficiency in its store outlets (Sawer, 2010).

Weaknesses

Sainsbury’s being one of the oldest supermarkets, having started operations ahead of competitors like Tesco and ASDA didn’t fully exploit the opportunity to grow and maintain lead in market share. It took long before making changes to new and promising strategies. The company had issues with inventory management and supply chain management that affected its products in 2004. The company however changed the management after suffering loss in the same year.

The overcautious and slack Sainsbury’s has not done enough in investing internationally, particularly in China, perhaps because it does not understand fully the trends and operating environment compared to its home competitors. According to Thompson (2012), the few retail stores it has compared to Tesco’s over 100 inChinamight “disappoint investors”.

Conclusion

Although Sainsbury’s lost its top slot in 2004 after it made its first loss in 135 years, the store chain quickly rose to profitability in subsequent years due to changes it made in management and widening of its investments. The company was least affected in the 2009 financial crisis due to its diversification and ability to reach a wide client base. However, the company faces competition both at home and in international markets, where competition based on prices is likely to affect its revenues.

List of references

  1. Brennan, K. (2009) A Guide to the Business Analysis Body of Knowledge, (Babok Guide), Version 2.0,Toronto: Institute of business analysis,
  2. Carel, L. (2008) ETFs For the Long Run: What They Are, How They Work, and Simple Strategies Investing, New York: John Wiley and Sons.
  3. Griffin, R. W. (2011) Fundamentals of management, New York: Cengage Learning
  4. Information Age: (2004), “Sainsbury’s dogged by supply chain problems” Online 10 February 2004, http://www.information-age.com/search/292891/sainsburys-dogged-by-supply-chain-problems.thtml (Accessed online: 23 May 2012)
  5. Jones, C. L. (2008) The Intelligent Portfolio: Practical Wisdom on Personal Investing from financial engineers, New York: John Wiley and Sons
  6. London Stock Exchange, http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary.html?fourWayKey=GB00B019KW72GBGBXSET1 (Accessed 23 May 2012)
  7. Regoff, E. G. & Bezos, J. (2007) Bankable business plans, New York: Rowhouse Publishing.
  8. Sainsbury’s Annual Report, 2011, http://www.j-sainsbury.co.uk/media/171813/ar2011_report.pdf (Accessed 23 May 2012)
  9. Sawer, P. (2010) “Chaos in supermarkets as computerized tills crash”, The Telegraph, Online, 2 October 2010, http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8038833/Chaos-in-supermarkets-as-computerised-tills-crash.html (Accessed online: 23 May 2012)
  10. Thompson, J. (2012) “Sainsbury’s steps cautiously into China”, The Independent, Online 06 May 2012, http://www.independent.co.uk/news/business/news/sainsburys-steps-cautiously-into-china-7717472.html (Accessed online: 23 May 2012)
  11. Wachman, R. (2010) “Sainsbury’s explores the idea of branching into China”, The Guardian, Online 26 September 2010, http://www.guardian.co.uk/business/2010/sep/26/sainsburys-explores-china-stores, (Accessed: 23 October 2012)
  12. Wood, Z. (2012), “Food price rises starting to slow”, The Guardian, Online 8 May 2012 http://www.guardian.co.uk/business/2012/may/08/food-price-rises-slowing (Accessed: 23 October 2012)

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