Market analysis of J Sainsbury free essay sample

Sainsburys was founded in 1869 by John James Sainsbury in London and quickly become the UK’s largest grocery retailer. Today, Sainsbury has opened over 1,1061 supermarkets and convenience stores and still develop itself continually. However, with the increasing competition of retail industry, some competitors have gradually overtaken Sainsbury, and make it become the third largest supermarket in the UK, behind Tesco and Asda. Even though it has overtaken Asda again and in the second place, it still faces challenges because of stiff competition among retail industry market. Therefore, the accurate recognition of market is necessary and Sainsbury should take activities to optimize its marketing planning. This report provides a market analysis of Sainsbury, aims to show Sainsbury’s current market conditions and give some recommendations for its future development. Analysis of Sainsbury’s external environment Organization’s external environment is the sum of various factors, which have an impact on the survival and development of organization (Hooley, G. 2012). Various changes of external environment are likely to bring different effects on organization: one is opportunity for organization’s development and the other one is threat for organization’s survival. Generally, external environment can be divided into the macro-environment (general environment) and the micro-environment (industry environment). This section will analyze Sainsbury’s general environment in UK by using PEST model and its industry environment by using Five Force Analysis, respectively. Macro-environment analysis (PEST analysis) Macro-environment factors include four main parts: political/legal, economic, social-cultural and technological; these are so-called PEST Factors. Political factors Some people think that the relationship between business and politics is not much. Although political impact on business is not very frequent, once influential, it will play a decisive role. First, for a long time, Britain has a high level of national stability. Government maintains a good partnership with local self-governments and citizens. The domestic environment is stable and harmonious and it is the premise for Sainsbury to attract more investment and also a premise of its smooth operation. Second, the economic system in UK is the mixed economies. It is the combination of market forces and central planning, it ensures the pursuit of self –interest, which is the heart of free market economics, and state intervention is always act as a supplement and adjustment for market. Therefore, mixed economies have positive impact on firm’s long-term development. Moreover, tax policy is also significant for Sainsbury. According to the data from Britain’s government, for the companies, which their profits are above ? 300,000, the corporate tax rates are declined from 26% in 2011 to 23% in 2013. 2 This policy change is helpful for Sainsbury to attract more investment. Furthermore, British government has good subsidy policy and has a good relationship with other major power. These factors can be more or less helpful for the development of Sainsbury. Economic factors Economic situation of a country will affect the income levels of consumers, consumer preferences and their savings status; then affect the market size of enterprises. According to IMF, Britain’s GDP is 2291. 431 billions in 2011, 2336. 295 billions in 2012 and 2391. 042 billions in 2013. 3 This growth trend indicates that peoples living standard improves continually and it is good for Sainsbury to scale up; also, it will improve the people’s demands for the products. Moreover, the UK’s inflation rate fell to 2% in December 2013, down from 2. 1%. 4 According to ONS, this decline mainly due to the slow increase of food’s and non-alcoholic drinks’ prices. Therefore, there are indeed some links between inflation and Sainsbury. Furthermore, according to BBC news, UK interests rate are 0.5% at January 2014, unchanged since March 2009. 5 It is still lower interests rate and good for Sainsbury to reply its loans. In addition, the continued high unemployment (around 7. 4%6) would affect the income level of customers and then affect the market activities of Sainsbury. Social-cultural factors First, education level of people is an important factor that would have impact on Sainsbury. Education is an important factor that affect people’s work, purchasing power, values, etc. In the UK 75% of adults aged 25-64 have earned a high-school degree or equivalent, it is more than the OECD average of 74%. Britain also has the free early education and further education courses and funding. Therefore, an environment with higher level of overall education will impact Sainsbury in the aspects of selecting products and service. Second, consumer’s demand and buying behavior are deeply affected by their concept of values. For different values, marketers of Sainsbury should adept different strategies to Cater to customer’s psychology. Moreover, agricultural resources are also significant factors that affect Sainsbury’s market activities. As Sainsbury is a retail company, for scarce agricultural resources they need to consider the issue of imports. Technological factors The development of science and technology brings both opportunities and challenges to organizations. First, computer interaction technologies provided Sainsbury the self-scanning system, which is cost saving and customer-friendly; and help Sainsbury built its online store, which can increase sale channels and improve customers’ experience. Moreover, information technology helps Sainsbury to manage stocks and logistics. Furthermore, eco-Technology provides more opportunities to Sainsbury to conduct energy and environmental management. It has already conducted the reduction of carbon and energy, and it wants to continue technological innovation, focusing on recycling and water innovation. 8 Micro-environment analysis (Porter’s Five Force Analysis) Porter’s Five Force Analysis is a widely used model for analyzing organization’s industry environment. It helps marketers to identify the competitive situation of an industry and then develop effective marketing strategies for organizations. The five forces determine five kinds of competing sources: bargaining power of suppliers, bargaining power of buyers, threat of new entrants, threat of substitute products and competitive rivalry; as chart 2 shows below: Chart Before using the Five Force Model to analyze competition, it is necessary to research the situation of the whole industry. According to Industry Life Cycle, the retail industry, which Sainsbury is belonged, is in maturity stage, and it is still keep developing. According to ONS, UK retail sales experienced strong growth; it jumped by 2. 6 percent during December 2013. Bargaining Power of Suppliers According to Sainsbury’s Annual Report 2013, fresh food is at the heart of what they do. Also, suppliers are product sources of retail enterprise. Therefore, suitable suppliers are important assurances for products’ quality of Sainsbury. Moreover, it seems that most suppliers’ products for retails companies are not unique, this may not good for improving the bargaining power of suppliers, but as the increasing number of retail companies, suppliers have many buyers, not just Sainsbury; from this point, suppliers also can maintain their high bargaining power. However, Sainsbury has built a close and long-standing relationship with its suppliers. It corporates with its suppliers, establishing â€Å"Development Group† for farmers and growers, investing groups and supporting farmers. 10 This relationship makes Sainsbury and its supplier interdependence, and also makes suppliers lose some bargaining power. Bargaining power of buyers Generally, buyers of retail industry are not concentrated and most buyers just buy a small number of products, it seems that buyers of retail industry have less bargaining power. However, because of the increasing number of retail companies, customers have more and more opportunities to choice. Moreover, the cost of switching from one seller’s product to another seller’s product is low, even zero. Therefore, the buyers bargaining power is also growing. Threat of new entrants Retail industry can realize the face-to-face contract with customers, and its profits are also high. Therefore, many strength companies intend to join the retail market. For example, some large clothes companies opened their own stores; moreover, many companies will expand their product line to become  hypermarkets. They are all potential competitors of Sainsbury. Threat of substitute products The main substitutes of supermarket are hypermarkets, specialty stores and online stores. Especially online stores, because of their significant cost advantage and convenience, the threats from online retail stores are big. Competitive rivalry Obviously, the competition of retail companies is very fierce. The number of retail companies increases continuously. In the domestic context, like Tesco, ASDA, Waitrose, MS, etc. are all strong competitors of Sainsbury. Opportunities and threats analysis Opportunities: 1. Expanding foreign markets, like China, India. 2. Enriching the mode of operation, not just large-scale supermarket; some other location and mode could be adopted, like Sainsbury Local. 3. Acquisition, merger or strategic alliances with other global retailers. Threats: 1. Competition from strong rivals. 2. Political problems when expanding foreign markets. 3. Prospects for local retail industry, cooperation or competition. Market segmentation, targeting and positioning Market segmentation of grocery retail market Market segmentation is dividing the mass market into some groups; customers in one certain group have common characteristics. Customers’ demands are dissimilar, and companies also have their own strengths in different areas, therefore, market segmentation can be smoothly realized and plays an important role in companies’ production and marketing. Each market segment is more specific, it is easier for marketers to grasp customers’ needs, and then develop appropriate marketing strategies. There are many methods used to conduct market segmentation. Generally, it can be conducted through four methods: demographic, geographic, psychographic, and benefits. Demographic The method of demographic includes several factors: age, family size, nationality, religion, occupation and income. Age and occupation will be analyzed in details here. Retail market can be divided through age. People in different age have different habits and customs; it would contribute to their different needs for grocery. For example, most young people live a fast-paced life, in order to saving time, they are more likely to choice some convenience food or semi-finished food; while most old people enjoy a slower pace of life, so that they tend to choice fresh vegetables, fruits, flowers and cook meal at home. Moreover, in some extent, people’s occupation decides their social class and income. People with high income tend to focus on the quality of product; they prefer to spend more money to buy a better product. While people with low income tend to pay more attention on the cost-performance of products. They are willing to spend more time to select the best suitable products. Therefore, these two markets have been divided. Geographic This method includes several factors: country, region, city, climate, etc. The population density in various regions is different. Generally, city’s population density is higher than that of countryside; therefore, they also have different demands for grocery. Moreover, climate also can be a factor that used in market segmentation. For instance, Malaysia do not has winter, so that apparel products for Malaysian market are different from others. Marketers tend to increase the number of light clothes and decrease the number of thick clothes. Psychographic This method mainly includes personality, lifestyle, values and attitudes. In terms of personality, some people are adventurous and some are traditional. Groceries for the â€Å"adventurers† are usually full of new ideas and constantly changing, while groceries for â€Å"conservatives† have less change but have higher and stable quality. Moreover, lifestyle also will affect people’s choice of groceries. People in a fast-paced life tend to choose convenience food, while people in a slow paced life tend to choose fresh food ingredients. These two groups are different market segments. Benefits Benefits factor means different people have various purposes when buying a certain type of products. So, each certain benefit can form a market segment. For example, when people choose soft drinks, some people are pursuing a good taste; some people who are overweight mainly pay attention to the calorie content; some people want to use these soft drinks to entertain guests, so that they are focus on the exterior designs; some people just want to quench, they tend to focus on the cost performance of soft drinks. Therefore, in retail market, there are specialized products for different â€Å"beneficiaries†; they have formed different market segmentation. Sainsbury’s market targeting Hooley, G.  says: â€Å" One of the key decisions a company faces is its choice of market or markets to serve†. Market targeting is the process that organizations select preferable market segments from a range of market segments, in order to prepare suitable products and services to meets the market segments’ needs. Here is a model that suited to deciding which market should be targeted in the first place. 11As chart 3 shows below: Chart From this model, in order to decide the target markets, organizations should understand their strengths and the attractive markets. These two factors are just the criterion for selecting target market. As a grocery retail company, Sainsbury is for the general public. Generally, its target market is undifferentiated market. It just the so said â€Å"full market coverage†. But it also has the special market segment. Sainsbury are targeting middle and high-class people and people who have health conscious. â€Å"Fresh food is at the heart of what they do†. 12 Sainsbury is committing to food quality for a long time. It invested in farmer development and built agricultural base in order to ensure the high-quality food supply. Therefore the prices of these foods are relatively higher compared with other competitors, like ASDA, Audi. According to the retail industry’s market segmentation, Sainsbury’s strength of high-quality food will attract relatively middle and high-class people, who are pay more attention on healthful life style and less attention to money. In fact, this market is an attractive market. The market size is not small, and the most important factor is that this market has high growth rate. With the improvement of peoples living standards, more and more people attach importance to food health and safety. Various green food and organic food are emerging, the attention concerning on food quality will become increasingly common. Therefore, these markets are good choices for Sainsbury to become target markets. However, its worth noting that attractive market segments have more competitors. For example, for high-class people market, there is high-end Waitrose; for health food market, MS also powerful; for fast-paced life market, almost every retail company is trying to open express store and online store. Therefore, Sainsbury should develop more unique and new markets, or try to be the best in its existing markets. Sainsbury’s market positioning As there are still intense competitions in target market segments, it is necessary for Sainsbury to create a competitive advantage in that chosen market. It is so called â€Å"market positioning†. The created advantage should be unique, hard for competitors to imitate and provide value for customers (Hooley, G. 2012). The natural of market positioning is to make obvious difference between the company and its competitors. That is to say, marketers can use the â€Å"uniqueness driver† to let customers feel the unique characteristics of this company, then leave a deep impression to the potential consumers. Generally, uniqueness driver can be summarized in five points: Sainsbury’s competitive advantages mainly focus on product differentiation, price differentiation and brand differentiation. Product differentiation According to market research, Tesco is focus on the abundant and diversity of products; ALDI’s and ASDA’s advantage is their lower prices. In terms of Sainsbury, its products’ characteristics mainly focus on their high quality. According to its Annual Report 2013, managers said that the quality and value of their food, their strong ethical standards and supplier relationships, differentiate Sainsbury from other supermarket. Sainsbury has regarded its high quality food as its strength. In fact, not only food, the other groceries of Sainsbury also have high quality, especially its own-brand products, which is always a driver of its growth and customers’ loyalty. Even though its do not have price advantage, this product advantage is enough to attract target people and let them feel Sainsbury’s whole strength. Price differentiation In fact, price is not an obvious competitive advantage for Sainsbury. Even so, it still has price differentiation. The average price of Sainsbury’s products is higher than Tesco, Aldi, or Morrison, and its discount frequency and intensity are also less than others. But its products’ price does not higher than Waitrose. Sainsbury stresses on price ratio, managers try to build a supermarket where customer use money as little as possible to buy groceries as well as possible. It just their slogan: â€Å"Live well for less†. Brand differentiation For a long time, Sainsbury is focusing on building a socially responsible brand image. Sainsbury’s employees have their corporate values: respect for environment, making a positive difference to community and a great place to work. 13 They did especially good in the aspect of protecting environment in 2013. They put waste into positive use, removing package from own-brand products, investing renewable energy, etc. Sainsbury’s environmental awareness, combining with its high quality products and strong ethic standard, is conductive to build a corporate which is full of social responsibility and deserve to trust. Therefore, its target customers would recognize it, trust it, and be loyal to it. In summary, Sainsbury has a successful market positioning. In people’s mind, Sainsbury is a trustworthy and customer-friendly grocery retail company with high quality products, reasonable price and enough social responsibilities. However, there is some potential problem in its products positioning. Its products are good enough, but the advantage is not unique. Waitrose and MS already entered the high ground, and other supermarket can develop their product and also have high quality products. This advantage is not hard to imitate. That is to say, this advantage is not stable and it is easy to lose. A positive example is Tesco. From my research, Tesco is the only large supermarket chains, which has Chinese food area. It is unique. This just matches Tesco’s product positioning, which is abundant and diversity. Even if other supermarket imitates this advantage, Tesco also maintain its â€Å"first to market† strength. Therefore, excellent goods are not enough, Sainsbury need some superior and special product in the future market competitions. Patent is the best, such as nutritive vegetables only growing in its own farmland. On the contrary, Sainsbury’s brand positioning is unique and hard to imitate. It is helpful to improve the competitiveness of Sainsbury. Marketing mix of Sainsbury In order to realize the marketing functions, company needs to have a marketing program or strategy. This is known as marketing mix (Borden, N. 1964). Marketing mix includes the following major elements: product, price, place, and promotion. These elements form the â€Å"4Ps† strategy. As chart 5 shows below: Chart Product In order to supports its product positioning, Sainsbury has continually insisted on the quality of food. Moreover, its expands product line into general merchandise and clothing, â€Å"offering customers high street quality and style at supermarket prices†,14 it also develops new business: pharmacy. As some people comment before, ASDA’s total sales had been boosted by non-food sales, Sainsbury is still particularly strong in the fresh food sector. 15 Now, Sainsbury intend to fully implements its market positioning through providing customers more and better products, better meet the needs of customers. Furthermore, it also develops bank service, entering energy industry and digital entertainment market; these activities can improve customers’ experience and develop high quality services. However, the sector of high quality food, which is the core offer of Sainsbury, cannot be neglected when develop numerous products at the same time. As long as Sainsbury does the best and is unique in this area, its competitiveness can be improved. Moreover, Sainsbury should notice the food packing in the future. In some extent, packaging can show the high quality of products. Although Sainsbury committed to environmental protection, simplifying package. But simple does not mean crude. On the contrary, Sainsbury can promote environmental awareness through packaging. Price Sainsbury does not have obvious low price advantage compared with some competitors. But it focus on price ratio. In 2013, Sainsbury’s managers have achieved over 100 million pounds of operational cost savings. They try to reduce products’ prices appropriately through reducing cost, and improving price ratio. This is an effective activity to become more attractive and to increase some price advantages. However, the reduction of price is not unlimited. Ultimately, it is still related to market positioning. High quality product cannot have low price. In some extent, raising the price for some special products appropriately can highlight Sainsbury’s market positioning and improve competitiveness. Place (Distribution) In this aspect, Sainsbury has complete channels and services, including supermarket, convenience store and online store. In 2013, it opened 14 new supermarkets and 87 convenience stores and find that 22% of UK population does not live within a 15 minutes drive of a Sainsbury. Indeed, it ensures the shopping convenience and put the customers in the first place. But many competitors also have this series of distribution methods, like Tesco and Morrison. Therefore, the uniqueness is the key. With the development of  technology, in the future, Sainsbury can develop a special method for quick paying online as a patent, which can optimize its market positioning. Promotion Advertisement is an important method for Sainsbury and other retail companies to promote their product. Beside this, from Sainsbury’s official channel in YouTube, we can see many videos that teach people how to cooking, including quick and easy recipes, beef recipes, pudding recipes, etc. Through this activity, Sainsbury can introduce their superior food; at the same time, more potential customers would be attracted. Sainsbury had cooperated with James Oliver, who is a famous chef for 11years. This cooperation is good for Sainsbury to introduce and promote their high quality food, highlight its market positioning. From 2011, Sainsbury started to cooperate with David Beckham, mainly focus on the activity of Active Kids. 16 Preventing the growth of obesity children. Obviously, this strategy is conductive to publicity brand image and can let people have more feeling about Sainsbury’s brand positioning. Conclusion In summary, because of increasingly fierce market competition and the rapid growth of competitors, Sainsbury faces new challenges. It needs develop itself continually and does some change when necessary to compete with others. It also has opportunists. First, as the second largest supermarket in the UK, Sainsbury has a lot of loyal customers. Therefore, it should still insist on it strength area: high quality food, fresh fruits and vegetables, ensure that there are no losses of existing markets. Moreover, retail market is for the public, there are still lots of untapped markets. Generating new ideas, exploring new markets, leaving core competitive market in certain degree, are also good strategy for Sainsbury to increase competitiveness.