Sainsbury ASDA Merger  Applied Corporate Strategy

Introduction

Sainsbury is one of the four dominating grocery stores in the U.K. The others include Asda, Tesco and Morrisons. Sainsbury’s was established in 1869, and it has expanded significantly since then. Currently, it has 1415 stores distributed in the main cities of the U.K. It also has a considerably good market share of about 17 %. The grocery is a source of employment for many since it has 186900 employees in total (Metzger, 2014 p 12). Sainsbury’s and Asda chain stores have an intention to make a merger, although several obstacles face their attempt.

PESTEL Analysis; Political factors

The Brexit uncertainties where the United Kingdom voted to leave the European Union in 2016. This move will negatively affect the Sainsbury’s since it will be more challenging to make the market entry to the European countries. Countries which are members of a universal union sign trade treaties that facilitate trade among the member countries. For example, they enjoy free deals were companies and businessmen from the respective members of the union are free to import and export products with minimal restrictions in the trade region of the union. The Sainsbury’s is worried about the U.K. exit from Brexit since they will no longer enjoy the free trade as much they would do while they are a member of the European Union (Metzger, 2014 p 10). This means that the Sainsbury’s will pay more for the exportation and importation fee to and from European countries. This will affect the grocery chain store since the cost of their products will go high. This will intern reduce their number of sales, and therefore less profit is realized.

Economic factor

The rising fuel prices have increased the cost of transportation. Supermarkets have really felt this impact since it is involved with a lot of travel activities such as transportation of their products around the country. The suppliers ALSO have increased their charges due to the increased cost of shipping. At the long run, the operational coast becomes very high, and this will reduce the profit margins of the supermarket. The employees of the Sainsbury’s have consistently demanded for the increment of their salaries due to the increase in the cost of living. The company has a massive number of employees close to 190000, increasing wages will significantly reduce the profit margins, and it may render the company being unstable. On the other hand, since the company was established nearly 150 years back, it has well-established structures and it has a stable capital base that has enabled it to open up stores almost in every part of the country hence bringing their services closer to their customers (Dockalikova & Klozikova, 2014 p 419).

Social-cultural factors

In recent years, there has been a social, cultural trend toward healthy eating. People have developed a sense of concern on what they eat and the value it is adding to their bodies. The customers have reduced the intake of junk foods due to their association with the increased lifestyle diseases such as diabetes, obesity, and hypertension. Health persons have highly discouraged people from refraining from taking unhealthy foods and instead chose the right diet that consists of fresh and natural foods. Media has also not been left be hide in sensitizing people to adopt a healthy feeding culture so as to keep most of the diseases away from us (Dockalikova & Klozikova, 2014 p 420).

. This has created a gap in the market since there is grown demand for the natural foods which is not sufficient in supply in the market. The Sainsbury’s can utilize this market opportunity as it has a large market segment. There is a ready market for the organic foods; hence the Sainsbury’s will make bulky sales and thus extend their profit margins.

 

Technological factor

Technology has positively impacted the operations of the Sainsbury’s in many ways. For example, the supermarket uses online advertising platforms such as Facebook, Yu tube and websites to popularize their products (Dockalikova & Klozikova, 2014 p 422). The online platforms are efficient and reach many people across the globe. It also cut the travel cost since their marketing officers do not need to move from place to place and instead, they work from the offices. The company also have adopted the online shopping strategy and it has helped them to reach out to the customers who are too much occupied and don’t have time for going shopping in the stores.

Environmental factor

Foodstuff is perishable and needs to be stored in cool warehouses throughout to avoid spoilage. The Sainsbury’s own large warehouses that are turned on always. The emotions from the warehouse contribute a fair share of carbon dioxide to the environment. The increased carbon dioxide in the environment causes erosion of the ozone layer, which block the harmful sun rays from reaching the earth’s surface. When these rays penetrate the atmosphere, they cause skin and eye complications to human beings. The company should come up with the technology to convert carbon dioxide to harmless form carbon (IV) oxide. The company should also avoid the use of plastics as their packaging materials since they are non-bio degradable (David, 2018 p 15).

Legal factors

Every business must abide with the legal expectations of the state it is operating in. This influence the decision making and structuring of a company. For example, the Sainsbury’s and the Asda grocery supermarkets proposed a merger which has faced objections from the Competition and Markets Authority (CMA). The authority argues that the merger will give the corporate an unfair competitive advantage. Hence the two companies must comply with the condition provided by the CMA so that their proposal can be given the go-ahead. The CMA’S decision has delayed the implementation of the plans and projections of the two companies (David, 2018 p 16). Other than the PESTEL analysis, there are an additional five forces that influence the Sainsbury’s company.

Competition

The Sainsbury face completion from other companies that offer grocer products in the U.K. The company is the second-largest in the U.K. hence it has fought for some space in the market. It possess about 17% of the share market and this is considerably sufficient to make it stand the world’s stiff competition. The U.K. government has also put protectionism measures that limit a company from taking over the market through unfair competition and denying other companies a chance to do business (Hu, Tan, Xin& Yang, 2013 p 78). This is evident when the Sainsbury’s and ASDA merger proposal was blocked by the Competition and Market Authority of the U.K. government. The competition is relatively moderate.

Customers

Customers are the primary determinant of the products and services a business should provide. The purchasing power of the customers is also crucial since it will determine the number of sales a company will make. The more purchases made by a company, the larger the profit margin they realize. A successful business should bridge a gap that is felt by the customers (Hu, Tan, Xin & ang, 2013 p 80). The customers are also attracted to the stores that have a variety of product to give them a chance to choose from the alternatives provided. They also opt to purchase products that are considerably cheaper and can serve the intended purpose. Entrepreneurs should ensure that they stalk sufficient products that are affordable to their customers in order to encourage return customers.

Suppliers

These are people who deliver products to the desired destinations. The suppliers have the capacity to control business since they influence the availability of goods and role materials to the market. The worst is when there is a monopoly since they tend to dictate the prices of the products since the businessman has no other source to get the products. The customer’s loyalty largely depends on the availability of the products they need (Cucciella, Koh, Soosay, Fearne & Dent 2012 p 8. Customers are attracted to stores which they can depend on products availability, affordability and sustainability. Sainsbury’s supermarket has got reliable suppliers who deliver goods on time. This is advantageous since the grocery avails the products whenever their customers are in need.

Retailers

The Sainsbury has several retail and whole stalls, the sales made in the respective stalls largely depend on the organization of the particular stalls and how they handle the customers who walk in to shop. Customers like most to shop in a supermarket that serves them with minimal delay. The retailers should also observe cleanliness, proper packaging and price tagging of the products. The stalls should also hire marketing officers who will assist the customers in knowing how to use a new product (Hu, Tan, Xin & Yang, 2013, p 85). The success of a company largely depends on the retailers who sell their produce. The Sainsbury Company have well-organized stores that enable them to make maximum sales.

General public

This is a very sensitive force in the market since the general public can help one reach his goal or prevent one from realizing his set goals. Such a big company as Sainsbury should always consider the general public expectations from them. For example, a company that is on the forefront to encourage people to plant trees to protect our environment and take action to provide seedlings to the public will be perceived to be selfless and will win hearts of many customers (Hu, Tan, Xin & Yang, 2013 p 88). Sainsbury’s company have participated in such public activities, and it has helped it to stand out.

The company’s strengths; Strong brand

The Sainsbury grocery stores are known all over the United Kingdom and beyond. It is easier to market products from a popular company since the customers already know about its existence. The company is well known since it was established before the 1870s, and it has proven to the customers it is highly dedicated to provide quality fresh grocer products and other foodstuffs. It has won the customers’ trust, and thus it has an added advantage of having return customers (Schonberger 2010 p 8). Return customers, in most cases, end up being loyal customers who are essential in sustaining a business. Since the company offer excellent services and deliver quality products to their existing customers, this act attracts potential customers who want to feel the experience of being served by professionals. Eventually, this expands their market segments, and thus their profit margin is extended.

High revenues and capital base

The Sainsbury Company have been operating quit for long for about 150 years now. They have accumulated a lot of assets and have set up infrastructures that help in increasing their capacity to provide products required by their customers. The availability of finances has enabled it to open up several stalls in significant cities in the United Kingdom and upcountry bringing their services and product nearer to their customers. This has positively impacted their sales since their customers don’t need to travel to major cities to get their services, but they are within their reach. More branches also contribute to popularizing the company, and hence more people become aware of its existence, and this will intern enlarge their market segment (Schonberger 2010 p 9). The capital base also makes the company eligible for bank loans whenever they are in need. Access to finances enables the company to implement their ideas and even open up more branches. Capital availability also will allow the company to hire experienced and well-skilled workers.

Skilled workforce

One hundred fifty years of operation is not a mean achievement. This means that the managers, workers and stakeholders of the Sainsbury Company work in conjunction to achieve a common goal which is expansion and growth of the company. Skilled workers are an asset to the company since they are easy to coordinate when working on a project in a team. The knowledgeable minds come together and share ideas on how a project will be run. Since different people have different backgrounds and experiences, they work as they complement each other, this results in excellent results being achieved. The ideas shared also form the basis of innovation of new methods of production, which are cheaper, more comfortable and less time-consuming. This enables the company to increase their number of customers they serve within a given period (Schonberger 2010 p 10). The increased efficiency in the service provision thus attracts more customers.

 

 

Good leadership

Both ASDA and Sainsbury grocer companies have depicted good leadership. There is a good interpersonal relationship among the leaders and the subordinate staffs. This has created a conducive working environment which has resulted in the success of the two companies. The merger of the two companies will form a strong management team that will boost the performance of the corporate since there will be excellent planning and organization.in addition the good leadership styles employed in Sainsbury company have enabled it to emerge the second-best grocer company in the united kingdom. The human resource managers can match workers with the duties they can perform excellently and also in areas they are trained and gained the required experience (Schonberger 2010 p 11). This has positively impacted the grocer company by being able to sustain and expand the boundaries of their market segment.

Stiff competition from other grocer company

Sainsbury faces stiff competition from other leading grocer companies such as ASDA, Tesco and Morrison’s. This has become the main challenge Sainsbury is facing since the target customers have the liberty to choose which supermarket they are going to do their shopping. It is an awakening call for the Sainsbury since they have employed new strategies such as online shopping to ensure they get to serve as many customers as possible. The completion has also made the Sainsbury to embrace advertising strategies on different platforms, for example, Yu tube, Facebook, and television. All these measures applied by Sainsbury to mitigate the competition impact have made the company incur extra cost in their operations, and thus their revenue is reduced (Schonberger 2010 p 15).

(Lin, Tsai, Wu & Kiang 2012 p 11)

	Value	Imitable	Rare	Organized to exploit	Competitive advantage
Brand reputation	Yes	Yes	Yes	Yes	Yes
Strong capital base	Yes	Yes	Yes	Yes	Yes
Skilled workforce	yes	yes	yes	Yes	yes
Good leadership	Yes	Yes	Yes	Yes	Yes

Support activities

infrastructure and good capital base
String human resource
Good leadership
Technological development
Inbound logistics	Operations	Outbound logistics	Strong brand portfolio	Services

 

margins

(Fearne, Martinez & Dent 2012 p 13)

Strategy evaluation

Twos analysis

Both Sainsbury and ASDA Companies have a good brand reputation, strong capital base, well skilled work force and good leadership. All these are enabling components that have keep pushing the Companies to a better competing level. Good leadership has always ensured that all the operational activities have been organized and assigned respective persons based on their strength. This has always ensured that the customers get the best services beyond their expectations. The marketing agents of the companies are always available whenever the customers need to be addressed over a concerning issue. Good leadership has also promoted effective communication among the managers and also the subordinate staffs. Effective communication is a critical tool since it ensures there are no confusions since the workers know what is expected of them at the workplace. Excellent communication promotes better coordination and also helps to avoid and solve conflict whenever it arises in the workplace. Good leadership have ensured that’s all customers’ needs, and wants are met, leading to customer satisfaction (Heiskanen, Apajalahti, Matschoss & Lovio 2018 p 69).

The proposed merger of Sainsbury and ASDA will form a reputable corporate with the potential to expand up to a multi-international company. Both companies have several stores in the United Kingdom and have shown potential and determination for growth. The merger of the two companies will increase the market share to about 32% since the ASDA and Sainsbury companies have a market share of 15.3% and 16.9% respectively.

SAF analysis; Sustainability

The merger will help the two companies to reduce the competition they face as individual companies. When they operate differently, they are competitors, but when they merge, they will work together as one corporate and hence reduce the competition they face as individual companies. They will now enjoy a competitive advantage over the other grocer companies since, after the merger, they will emerge the largest grocer company in the UK. ASDA and Sainsbury companies have been in operation for quite some time that is 65 years and 150 years respectively, therefore, they have won the trust of their customers. They are confident that they will retain their customers and attract more to seek services from their cooperate (Heiskanen, Apajalahti, Matschoss, & Lovio, 2018, p 58). This will enable them to make more sales and hence expand their profit margin.

Acceptability

The merger proposal has faced strong objections over and over again by the Competition and Market Authority. The CMA authority argues that the customers’ interest will be compromised because they will have to choose to shop from fewer grocer companies. The authority is keen to regulate business operations and reorganization to ensure that the customers get the best and there is no monopoly of one company which would result to the exploitation of the customers by making them pay more for a product or services. The authority is objective to the merger since it will give the two companies an unfair competitive advantage. This will disadvantage the customers since the cooperate will compromise the quality of the products and services offered. The merger will also deny other companies a chance to do their business on a fairground since the merger of ASDA and Sainsbury companies will take up about 32% of the market share (Heiskanen, Apajalahti, Matschoss, & Lovio, 2018 p 62). If the merger proposal is successful, then the infant grocery companies will have a slim chance to be established and grow to large companies.

The Competition and Market Authority has put the restrictive measure to the ASDA and Sainsbury Company that they have to sell 300 stores to a single buyer in order for the authority to consider their merger proposal. This is all to protect the consumers’ interest and also the infant companies that are finding a way to make entry to the market

Feasibility

ASDA and Sainsbury grocery companies have a well-established capital base, and they both have what it takes for them to implement the merger proposal. They have sufficient funds needed to acquire the legal certification and also to rebrand the corporation. The companies have accumulated revenues gotten from the profit made over the years they have been operational. The two companies also are rich in human resource since the financial well up has enabled each of them to hire professionals who are experts in running large companies (Heiskanen, Apajalahti, Matschoss, & Lovio, 2018 p 66). The merger will form a robust managerial team that will enable the cooperative to expand their market territories and also to serve more customers.

References

Cucciella, F., Koh, L., Soosay, C., Fearne, A. and Dent, B., 2012. Sustainable value chain analysis–a case study of Oxford Landing from “vine to dine”. Supply Chain Management: An International Journal.

David, J., 2018. PESTEL Analysis of Australia. Howandwhat. Recuperado de https://www. howandwhat. net/pestel-analysis-australia.

Dockalikova, I. and Klozikova, J., 2014, November. MCDM Methods in Practice: Determining the Significance of PESTEL Analysis Criteria. In European Conference on Management, Leadership & Governance (p. 418). Academic Conferences International Limited.

Fearne, A., Martinez, M.G. and Dent, B., 2012. Dimensions of sustainable value chains: implications for value chain analysis. Supply Chain Management: An International Journal.

Heiskanen, E., Apajalahti, E.L., Matschoss, K. and Lovio, R., 2018. Incumbent energy companies navigating energy transitions: strategic action or bricolage?. Environmental Innovation and Societal Transitions, 28, pp.57-69.

Hu, F., Tan, W., Xin, Q. and Yang, S., 2013. How do market forces affect executive compensation in Chinese state-owned enterprises?. China Economic Review, 25, pp.78-87.

Lin, C., Tsai, H.L., Wu, Y.J. and Kiang, M., 2012. A fuzzy quantitative VRIO‐based framework for evaluating organizational activities. Management Decision.

Metzger, K., 2014. Business analysis of UK supermarket industry. GRIN Verlag.

 

Schonberger, R.J., 2010. World class manufacturing: the next decade: building power, strength, and value. Simon and Schuster.