External Analysis of J. Sainsbury Company - Research Paper

1.0 Introduction

J. Sainsbury Company that trades as Sainsbury's, in the United Kingdom's third-largest chain of supermarkets. It has a large market share of 15.3% in the supermarket sector in the country. Established in 1869, the organization has become the largest grocery retailer since 1922 (Tamzid and Parves, 2017: 1). The vision of the organization is the most trusted retailer, where people loved working and shopping. Sainsbury's achieves this by placing its clients at the center of everything it does and making significant investments in the stores, colleagues, and channels for offering the best shopping experience. The future growth and success of the organization depend on the ability to anticipate and deliver what clients require. The company values include health, sourcing, environment, community, and colleagues. Sainsbury's focuses on assisting its clients in eating healthily through improving the quality of their foods (Tamzid and Parves, 2017: 1). Also, the organization works closely with growers, suppliers, and farmers in the United Kingdom and foreign countries towards reassuring clients about how and where the products are sourced. Sainsbury's also cares for the planet and the impact that its worldwide suppliers and the organization has on the environment. To this end, Sainsbury is minimizing its emissions, use of water, and waste emissions. Sainsbury has also fostered its activities in the community, ensuring it encourages stores to get involved in food donations, and volunteering programs. The organization is also dependent on colleagues towards delivering exceptional customer services. Sansbury's also depends on colleagues who work hard towards ensuring company success. Therefore, Sansbury makes significant investments in them and making sure they are part of the company's plans.

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2.0 External Analysis

2.1 Industry Analysis

The economic downturn has affected the UK supermarket industry. Presently, the growth of revenue at the UK Supermarket is $162 million. The yearly growth rate is 2.3%, with over 61 organizations running their businesses in the UK supermarkets (Aluko and Knight, 2017: 423). The UK supermarkets have allowed people to purchase products with the least prices. To reap benefits from the poor economic conditions, organizations in UK supermarkets sell products with low-profit margins.

2.2 Porter's Five Forces Analysis

2.2.1 The Threats of New Entrants

Companies need to make significant investments in capital to start businesses in the UK Supermarket sector. Therefore, the organization can establish its services and products alongside building a successful brand image. Given the high capital investments, Sainsbury has low threats of new entrants. The major threats that the company has to encounter are its existing rival brands. There are different organizations such as ASDA, Morrison's, and TESCO that have been established in the industry. In the current UK Supermarket sector, Sainsbury has already established its brand alongside the main rivals, with over 85% of the shopping activities being carried out in the centre (Hassan and Parves, 2013: 3). Therefore, new entrants into the UK Supermarket sector must make long-term plans for beginning their businesses alongside the government's regulatory permissions. These are long issues and procedures. From this viewpoint, Sainsbury has low competition from the new entrants. Nonetheless, the superior policies such as online shopping facilities, regular hotline, timely and quick delivery of purchased products, and the low-cost products have assisted in capturing loyal clients to Sainsbury PLC.

2.2.2 Competitive Rivalry

There is an extremely intense competitive rivalry in the UK Supermarket sector for Sainsbury. There are already established brands such as ASDA, William Morrison's, and TESCO that have high capital investments, strong strategies, and policies. ASDA and TESCO have increasingly focused on switching their clients through effective services. These services vary, including high-quality products through the low prices and the promotion of the brand using effective media platforms such as Twitter, Facebook. The company also involves film stars or sportspeople for brand promotion (Zvolenszky, 2013: 597). Earlier, it was identified that the UK retail industry had created competition by reducing its product prices itself that lead to low growth of revenue. Still, the main rival organizations, such as Waitrose and TESCO, have gained high revenue growth in the slow market. The big organizations have captured loyal clients. Thus, the competition from the rivalry in the UK retail sector is very high. Organizations such as ASDA have increasingly lowered their product services to have a high market share.

2.2.3 Threats from the Substitute Products

Sainsbury has faced high competition from the threats of substitute products, especially in the apparel industry. At the same time, the organization has faced low competition from substitute products in the food sector. Concerning the apparel items, there are different developments of counterfeit products, particularly for the companies that reduce the market share of the luxury brands (Lee, 2014: 27). Whenever new services or products meet similar customer needs in varied ways, the profitability of the industry suffers. For instance, services such as Google Drive and Dropbox are substituted to the hardware drives. There are high threats of substitute services or products provided they offer a high-value proposition that is uniquely different from the current offerings. Sainsbury has solved this approach by being service-oriented instead of just being product-oriented. Sainsbury also focuses on understanding the main need of the clients instead of what the client purchases.

2.2.4 Bargaining Power of Suppliers

Most of the companies in the retail sector purchase their raw material from various suppliers. The suppliers in the dominant positions reduce the margins that Sainsbury earns in the market. The powerful suppliers in the consumer services sector use the negotiating power in extracting higher prices form the organizations in the retail field. Sainsbury PLC can handle the suppliers' bargaining power by establishing an effective supply chain with different suppliers (Azeez, 2014: 3). Through experimentation with product designs by using various materials so that when the prices of raw material go up, the company changes to another. Sainsbury also develops dedicated suppliers whose business relies on the organization. Sainsbury also learns from Nike and Walmart, especially with the way the organization has developed third party producers whose business depends solely on them.

2.2.5 Bargaining Power of Buyers

Consumers demand and expect a lot. Clients want to purchase the best services that are available by paying the least price as possible. The scenario places a lot of pressure on Sainsbury PLC's profit margins in the long-run. The more powerful and smaller the consumer base is, the higher the customers' bargaining power and their ability to seeking increased offers and discounts. Sainsbury PLC has focused on ensuring it has a large consumer base that bridges the gap in the buyers' purchasing power and offers opportunities for the firm to streamline the production and sales processes (Makopoulou, Armour, Thomas, and Ntoumanis, 2013: 20). Sainsbury has also focused on the rapid innovation of new products. Clients keep seeking offerings and discounts on established products, forcing Sainsbury PLC into developing new products to limit the buyers' bargaining power.

Figure 1: Porter's Five Forces Analysis

Porter's five forces analysis gives information about the industry analysis, including the purchasing power of suppliers, their bargaining powers and the threats faced by the company.

3.0 Threats and Opportunities for Sainsbury

3.1 Threats

Just like any other supermarket chain in the retail sector, Sainsbury faces the same threats in the form of competition. The launch of discounters such as Lidl and Aldi have offered competitive and quality products, but at discounted rates. Also, the increased costs of living in the United Kingdom have forced people to reduce their expenditure. In these situations, people are attracted to discounters to have quality products but at minimal prices. When clients are unhappy with Sainsbury, they will shift to alternative stores such as Lidl. The food product prices of Sainsbury have been affected by the worldwide increment in food prices, forcing the organization to sell its products at higher prices (Guo and Wang, 2019: 325). In the current competitive market, it is an increasing threat for Sainsbury's to maintain its products' qualities without compromising other factors. To handle this situation, the organization could either minimize its prices or product quantity or introduce new low costs products as replacements of the original ones.

3.2 Opportunities

There are different opportunities available for Sainsbury concerning the expansion of its global presence, particularly in emerging markets such as India, China, and Brazil. These emerging economies have a large working population and offer wide markets. Nations with a fast-growing economy offer enough labour at the least available cost. The effect is the reduction of the production costs for the organization, which results in the sales of the finished products at relatively lower prices and thus attracting more clients. Reducing the overall expenditure assists Sainsbury's in investing more in the creation of more outlets. It also helps with the attraction of more potential clients on a worldwide scale (Guo and Wang, 2019: 326). The effect is that Sainsbury gains a competitive advantage over the higher market share. At the same time, the emerging markets have potential clients with rising disposable income, and this increases their affordability. Therefore, having a retail store in these markets increases the product demands among the population, which is more organizational profit. The presence of reduced or completely no competitors helps in having a strong foothold in the market. Sainsbury's also has another opportunity in digital marketing. With the increased online shopping activities and facilities in the United Kingdom, Sainsbury's online shops will ensure clients shop conveniently and at their own pace (Adewuyi, 2016: 45). Moreover, it offers great flexibility to clients who have issues with mobility. Clients can reach out to the organization's products through online platforms.