Strategic and SWOT Analysis Report on
Sainsbury
COMPANY
OVERVIEW
J
Sainsbury (Sainsbury’s or 'the company') is engaged in the retailing services
with business interests in financial services and property investments. The
company operates in the UK, where it is headquartered in London. It employed
157,000 people (of which 107,900 were part-time employees) as on March 16,
2013.
The
company recorded revenues of £23,303 million (approximately $36,858.4 million)
during the financial year ended March 2013 (FY2013), an increase of 4.5% over
FY2012. The operating profit of the company was £887 million (approximately
$1,403 million) during FY2013, an increase of 1.5% over FY2012. The net profit
was £614 million (approximately $971.2 million) in FY2013, an increase of 2.7%
over FY2012.
SWOT
ANALYSIS
J
Sainsbury (Sainsbury’s or 'the company') is engaged in the retailing services
with business interests in financial services and property investments.The
company’s significant presence in the UK retailing market provides it with a
distinct competitive advantage. Increasing labor costs in the UK may, however,
affect the company's profitability.
Strengths
Significant presence in the UK retailing
market
Sainsbury’s
is one of the leading retail chains in the UK. The company has a market share
of around 16.8% in the UK retail industry with over 23 million customer
transactions per week. It offers a variety of products through a network of
1,106 stores, including 523 convenience stores and 583 supermarkets. The
company also provides Internet-based grocery business, which covers nearly 96%
UK postcodes, with Sainsbury’s delivering over 10.5 million items every week. The
company’s significant presence in the UK retailing market provides it with a
distinct competitive advantage to gain most from favorable market dynamics.
Robust portfolio of own-labeled products
Sainsbury’s
has a robust portfolio of own-labeled products. It has developed a strong
private brand product portfolio over the years. Prominent among these lines of
products are Basics, an economy range of food and non-food products; and Taste
the Difference, a premium food lines including many processed foods such as
readymade meals and premium bakery lines. The other popular privately-owned
brand of the company includes ‘Tu’, which is its own clothing brand range. In
2012, Sainsbury’s re-launched its core own label 'by Sainsbury's' brand, which
currently has over 6,500 new or improved products. Sainsbury's robust own-label
portfolio has enhanced its brand image in the UK.
Competitive advantage through Nectar and
Brand Match loyalty programs
Sainsbury's
Nectar loyalty program and Brand Match are a source of competitive advantage.
Nectar is the UK's largest and most popular loyalty program and Sainsbury's has
12 million active Nectar card users. With its data, the company can reward
customers directly at the till with points, and relevant rewards and
promotions. In FY2013, a record number of people used their Nectar cards, with
£213 million (approximately $337 million) worth of points redeemed.
Sainsbury’s
Brand Match gives guaranteeing price match on the basket of comparable grocery
branded
goods with Asda and Tesco. Over 14,000 branded grocery lines are included and
the
initiative
works by offering customers who spend over £20 (approximately $32) and buy at
least one branded product coupons at the till for use at their next shop.The
company also includes promotions provided the same number of products is bought.
Consistent performance strengthening the
company’s cash position
Consistent
performance has strengthened Sainsbury's cash position.The company's revenues
were £23,303 million (approximately $36,858 million) in FY2013, representing a
compound annual growth rate (CAGR) of 5% between FY2010 and FY2013. As a
result, Sainsbury's operating profit increased at a CAGR of 8% during the
period in analysis to reach £887 million (approximately $1,403 million) in
FY2013. Meanwhile, net profit of Sainsbury’s grew at a CAGR of 2% to reach £614
million (approximately $971 million) in FY2013. Consistent market performance
has helped Sainsbury’s build a strong cash-generative business. As a result,
the company recorded an operating cash flow of £1,268 million (approximately
$2,006 million) in FY2013. Strong cash position provides Sainsbury’s with
financial flexibility to invest in growth opportunities.
Weaknesses
Significant reliance on the UK market
exposing the company’s business to dependency risks
Sainsbury’s
is dependent on its domestic market, the UK, for its revenues. In FY2013, the
company generated 100% of its revenues from the UK, while its competitor,
Tesco, generated revenues from different geographic markets. For its financial
year ended February 2013, Tesco derived 68% of its revenue from the UK, 17.7%
from Asia and 14.3% from Europe (excluding the UK).
Dependency
on the UK could make Sainsbury’s business and operations vulnerable to
country-specific trends. Such geographic concentration increases the risk that,
should any adverse economic, regulatory, environmental or other developments
occur in the UK, the company's business and financial condition will be
affected. The company may be substantially affected by the political or cultural
changes that occur due to the geographical concentration in the UK.
Unfunded employee post-retirement
benefits may affect the company’s liquidity position
Sainsbury’s
has significant unfunded pension obligations.The company provides retirement
benefits to its employees. In FY2013, the company's pension benefit obligations
stood at £6,594 million (approximately $10,430 million) as compared to the
planned assets of £5,841 million (approximately $9,239 million), resulting into
an unfunded status of £753 million (approximately $1,191 million). Unfunded
pension obligations may force Sainsbury’s to make regular cash contributions to
bridge the gap between pension assets and liabilities, which, in turn, could
put pressure on its liquidity position.
Opportunities
Gaining full ownership of Sainsbury's
Bank
In
May 2013, Sainsbury's paid £248 million (approximately $396 million) to Lloyds
Banking Group to gain full control over Sainsbury's Bank, buying out the 50%
stake owned by its partner. This transaction was completed in January 2014.
Sainsbury's Bank, launched in 1997, has delivered five consecutive years of
profit growth, with proven opportunities to complement Sainsbury's business. It
has around 1.5 million active accounts and offers a range of simple banking
products to retail customers only, including credit cards, savings, personal
loans, general insurance and travel money. Gaining full ownership of
Sainsbury's Bank would provide Sainsbury’s with significant opportunities to
increase number of bank customers and enhance customer loyalty by offering
accessible and tailored products which reward customers who bank and shop with
the company.
Favorable trends towards online retail
sector in the UK likely to provide growth opportunities
Online
retail sales in the UK have grown significantly in the past few years.
According to a MarketLine report published in July 2013, the UK online retail
sector grew by 15.2% in 2012 to reach a value of $52.5 billion. In 2017, this
sector is forecast to have a value of $75.2 billion, an increase of 43.2% since
2012. The UK accounts for 22.8% of the European online retail sector value. Keeping
this growth in view, in October 2013, Sainsbury’s announced its plans to
support its online grocery business by opening its first dedicated Online Fulfilment
Centre in Bromley-By-Bow, East London. The new online fulfilment center, which
the company plans to open within the next few years, will help Sainsbury’s meet
the demand for its online grocery service in London and the South East.
Currently, Sainsbury’s Online delivers to over 190,000 customers each week.
Sainsbury’s expects that its new online fulfilment center will enable it to
serve an additional 20,000 customers each week in the UK.
Positive outlook for the UK food retail
industry
According
to a MarketLine report published in March 2013, the UK food retail industry
grew by 3.2% in 2012 to reach a value of $193.1 billion. In 2017, the industry
is forecast to have a value of $217.4 billion, an increase of 14% since 2012.
The UK accounts for 10.1% of the European food retail industry value. As
Sainsbury’s is one of the leading food retailers in the UK, positive outlook
for the UK food retail industry could drive its business growth.
Threats
Increasing labor costs in the UK may
affect the company's profitability
The
labor costs have increased in the UK, primarily due to the tight labor markets,
increased overtime, government mandated increases in minimum wages and a higher
proportion of full-time employees. In the country, the national minimum wage
has been increasing every year since 1999, when the minimum wage was £3.60
(approximately $5.7). It was increased to £5.93 (approximately $9.4) per hour
in 2010, £6.08 (approximately $9.6) per hour in 2011 and £6.19 (approximately
$9.8) per hour in 2012. In the UK, the minimum wage had gone up by 71.2% since
the government introduced the minimum wage policy in 1999. As Sainsbury’s
operates in the UK, increasing labor costs in the country could affect the
company's operating costs, which in turn can have a negative impact on its
profitability.
Surge in shoplifting losses
The
UK retailers are exposed to increased costs of shoplifting. Shoplifting has
assumed massive
proportions
in recent times. According to industry estimates, retail crime cost the UK
stores about $2.6 billion in 2012, an increase of 14% as compared to about $2.2
billion in 2011. Long-term trends also show the figure is likely to continue
rising. As a result, retailers have been increasing their surveillance spend.
This is increasing the costs for retailers as well as for the end consumers.
The shoplifting losses are adding to the costs for the retailers and the
customers have also been bearing the brunt. The surge in shoplifting losses
could negatively impact the cost structure of the company.
