c

(a) Critically evaluate and overview the key UK supermarket

competitors

(b) Comment on the positioning of the key players and discuss their
overall segmentation and targeting strategies and evaluate the
critical success factors for Sainsbury·s PLC.

(c) Looking at Sainsbury·s strategy, what would you do differently?

c
c
Over the last two decades, the growing dominance of supermarkets
has been a major theme in the nation·s life, seen in eating habits,
shopping trends, the architecture of the high street, even the look of
the countryside. It is undeniable that the vast range of goods and
services that supermarkets provide, and the prices at which they
supply them, have been terribly successful. However, the growth and
profitability of these companies ² in particular, the four major chains,
Asda, Morrisons, Sainsbury·s and Tesco ² has been controversial, and
many critics have argued that their competitive dominance is as a
result of regulatory failure.
c
The UK grocery market has been the subject of two major e nquiries
by the competition authorities in recent years. The Competition
Commission completed the first of these enquiries in October 2000,
and it lead to the creation of a Code of Practice, to regulate the
relationship between the four largest supermarkets and their
suppliers. However, the Office of Fair Trading (OFT), which assessed
the Code, received many complaints that the Code was not
preventing supermarkets exploiting some of their suppliers, and
putting many small shops out of business. In May 2006 the OFT
referred the market to the Competition Commission for a second
enquiry, which it completed in April 2008. The Commission
concluded that in many respects UK grocery retailers were
´delivering a good deal for consumersµ but that action was ´needed to
improve competition in local markets and to address relationships
between retailers and their suppliersµ, including a strengthened and
revised Code of Practice, to be enforced by an independent
Ombudsman.
c
 Initially the Commission sought to establish the new Ombudsman
on a voluntary basis, but having failed to reach agreement with the
supermarkets, in August 2009 it recommended that the Government
should do this. In January 2010 the Government announced that it
accepted the Commission·s recommendation, but that ´mindful of
placing unnecessary costs on to business especially in a period of
economic difficultyµ, it would formally consult on ´how best to take
matters forward.µ On 5 February the department published its
proposals; responses are invited by 30 April.
c
Supermarkets are a thriving and dynamic part of the economy, and
their success benefits not only their shareholders, but local
communities, their employees, their customers and our regional and
national economies. In 2007, an estimated £110 billion-worth of
grocery sales were made through nearly 100,000 grocery stores
across the UK. It is true that the eight largest grocery retailers
accounted for about 85 per cent. of total grocery sales, with the
largest four accounting for just over 65 per cent., but it is important
to recognise that some supermarkets play a vital, anchoring role in a
number of town centres. Occasionally, they also play a crucial role in
regenerating town centres. ... Supermarkets provide much-needed
employment and help to attract other, smaller retailers to set up
shop in their shadow [and make a contribution] ... in improving their
ethical sourcing and environmental performance, whether on climate
change or waste.
c
COMPANY OVERVIEW :-
c
J Sainsbury (Sainsbury) is a UK based food retailer with business
interests in financial services.The company operates supermarkets,
convenience stores, internet-based home delivery shopping service
and Sainsbury's Bank. It is headquartered in Holborn, London and
employs 148,500 people of which 98,800 are part-time employees.
The company recorded revenues of £18,911 million ($32,828.7
million) during the financial year ended March 2009 (FY2009), an
increase of 6% over FY2008. The operating profit of the company was
£673 million ($1,168.3 million) during FY2009, an increase of 27%
over FY2008. The net profit was £289 million ($501.7 million) in
FY2009, a decrease of 12.2% compared to FY2008.
c
c
BUSINESS DESCRIPTION :-

Sainsbury is engaged in grocery and related retailing throughout the

UK. Its businesses comprise of supermarkets, convenience stores
(internet-based home delivery shopping service) and Sainsbury's
Bank. The company's range of products besides food and groceries
include clothing, alcohol and beverages, books and gift items,
computer paraphernalia, kitchen appliances, meat and fish, petrol
and fuel, pharmaceutical drugs and home ware.

The company operates through two segments: food retailing

(supermarkets, convenience and online) and financial services
(Sainsbury's Bank joint venture).

The group's convenience stores include: Bells Stores, Jackson's

Stores, and JB Beaumont stores.

Sainsbury's Bank is jointly owned by J Sainsbury and Lloyds

Banking Group. The products offered by Sainsbury Bank include:
savings and loan products, credit cards and a number of insurance
products. After the sale of 5% of Sainsbury's Bank's shareholding in
2007, revenue from financial services has been accounted as a joint
venture.

The company also has two property joint ventures with Land
Securities Group and The British Land Company.
c
Principal risks and uncertaintiesc
c
c
The ¶Making Sainsbury·s Great Again· (´MSGAµ) plan continued to
progress from recovery to focus on growth during the year. To
support the growth plans and to fully consider both opportunities and
risks, a new business strategy team has been established, and the
risk management process has been enhanced. Risk is an inherent
part of doing business. The system of risk management used to
identify the principal risks the Group faces, and to develop and
closely monitor key controls, is described on pages 31 to 32. The
management of the risks is based on a balance of risk and reward
determined through careful consideration of both the potential
likelihood and impact. The principal risks identified by the Board
and the corresponding mitigating controls are set out below in no
order of priority.
c
Business continuity and acts of terrorismc
c
c
A major incident or act of terrorism could impact on the Group·s
ability to trade. In the event of a potentially disruptive incident,
detailed plans are in place to maintain business continuity. These
plans are regularly updated and tested.

c
Business strategy :-
c
If the Board adopts the wrong business strategy or does not
implement its strategies effectively, the business may be negatively
impacted. Strategic risk needs to be properly understood and
managed to deliver long-term growth for the benefit of all
stakeholders.
c
A clear strategy is in place with five key areas of focus: great product
at fair prices, accelerating the growth of complementary non-food
ranges, reaching more customers through additional channels,
growing supermarket space and active property management.
Progress against these areas of focus and any risks to delivery are
regularly reviewed by the Board and the overall strategy is reviewed
at the annual two-day strategy conference. The Operating Board also
holds regular sessions to discuss strategy. This activity is supported
by a dedicated strategy team.

To ensure that the strategy is communicated and understood, the

Group engages with a wide range of stakeholders including
shareholders, colleagues, customers and suppliers.
c
Colleague engagement, retention and capability :-

The Group employs around 150,000 colleagues who are critical to the
success of our business.Maintaining good relations with colleagues
and investing in their training and development is essential to the
efficiency and sustainability of the Group·s operations.
The Group·s employment policies and remuneration and benefits
packages are regularly reviewed and designed to be competitive with
other companies, as well as providing colleagues with fulfilling career
opportunities. Colleague surveys, performance reviews,
communications with trade unions and regular communication of
business activities are some of the methods the Group uses to
understand and respond to colleagues· needs. Processes are also in
place to identify talent and actively manage succession planning
throughout the business.
c
c
c
Economic and market risks :-
c
The unprecedented economic slowdown and reducing job security is
resulting in an increasing demand for value from customers.
Challenges to household disposable income, competitor pricing
positions and product costs can affect the performance of the Group
in terms of both sales and costs.

Focus continues on delivering quality products with universal appeal,

at a range of price points ensuring value for all our customers. This is
achieved through the continuous review of our key customer metrics,
active management of price positions, development of sales
propositions and increased promotion and marketing activity.

While external cost pressures including oil-related costs and business

rates affect our business, the Group continues to work hard to
mitigate the impact of these cost pressures on customers and on our
overall profitability through the delivery of cost savings.

Environment and sustainability :-

c
The key risk facing the Group in this area relates to reducing the
environmental impact of the business with a focus on reducing
packaging and new ways of reducing waste and energy usage across
stores, depots and offices. A number of initiatives are in place, which
are being led by the Environmental Action team and the Corporate
Responsibility Steering Group to reduce our environmental impact
and to meet our customers· requirements in this area.
c
c
Financial strategy and treasury risk :-
c
The main financial risks are the availability of short and long-term
funding to meet business needs and fluctuations in interest and
foreign currency rates, which are heightened by the turbulence in the
financial markets and the downturn in the economic environment.

The central treasury function is responsible for managing the

Group·s liquid resources, funding requirements , and interest rate and
currency exposures and the associated risks as set out in note 29 of
the Annual Report and Financial Statements. This function has clear
policies and operating procedures which are regularly reviewed by
internal audit.
c
Fraud :-
c
The Group has a strong control framework in respect of potential
fraud or other dishonest behaviour, which is regularly reviewed by
internal audit. A set of policies are in place to provide colleagues with
clear guidance on behaviour.

In addition, there are ¶whistle blowing· procedures in place to enable

colleagues and suppliers to raise concerns about possible
improprieties on a confidential basis. Internal audit undertakes
detailed investigations and highlights its findings to the Audit
Committee.
c
Health and safety :-
c
Prevention of injury or loss of life for both colleagues and customers
is of utmost importance. Clear policies and procedures are in place,
which are aligned to all relevant regulations and industry standards
and adherence to them is regularly monitored.
c
IT systems and infrastructure :-
c
The Group is reliant on its IT systems and operational infrastructure
in order to trade efficiently. A failure in these systems could have a
significant impact on our business.
The Group has extensive controls in place to maintain the integrity
and efficiency of its systems including detailed recovery plans in the
event of a significant failure. New innovations and upgrades to
systems are ongoing to improve both the customer experience and
colleague efficiency. Prior to introducing system changes rigorous
testing is completed.
c
Pension risk :-
c
The Group operates a number of pension arrangements which
includes two defined benefit schemes. These schemes are subject to
risks in relation to their liabilities as a result of changes in life
expectancy, inflation and future salary increases, and to risks
regarding the value of investments and the returns derived from
such investments.
c
An investment strategy is in place which has been developed by the
pension trustees, in consultation with the Company, to mitigate the
volatility of liabilities and to diversify investment risk.
c
Product safety :-
c
The quality and safety of our products is of the highest importance
and any failure in standards would significantly affect the confidence
of our customers. There are stringent controls in place to ensure
product safety and integrity. Food hygiene practices are taken very
seriously and are monitored regularly to ensure compliance with
standards. All aspects of product safety are governed through the
Product Safety Committee.

All suppliers are expected to conform to the Group·s code of conduct

for Socially Responsible Sourcing which launched in 1998 and covers
fair terms of trading, protection of children, worker health and
safety, equal opportunities, freedom of association, freedom of
employment, hours of work and wages.
ccccccccccccccccccccccccc
Regulatory environment :-
c
The Group·s operations are subject to a broad spectrum of regulatory
requirements particularly in relation to planning, competition and
environmental issues, employment, pensions and tax laws and
regulations over the Group·s products and services.
There is an established governance process in place to monitor
regulatory developments and to ensure that all existing regulations
are complied with. Regular reviews are completed across the estate to
ensure compliance and that training needs are addressed as required ëc
c
c
c
Corporate objectives :-
c
The Company·s ¶Recovery to Growth· plan spans from March 2007 to
March 2010 and has fi ve areas of focus:

‡ Great food at fair prices: To build on and stretch the lead in food.
By sharing customers· passion for healthy, safe, fresh and tasty food,
Sainsbury·s will continue to innovate and provide leadership in
delivering quality products at fair prices, sourced with integrity.
c
‡ Accelerating the growth of complementary non-food ranges and
services: To continue to accelerate the development of non-food
ranges and services following the principles of q uality and value and
to provide a broader shopping experience for customers.
c
‡ Reaching more customers through additional channels: To extend
the reach of Sainsbury·s brand by opening new convenience stores
and developing the online home delivery operation.
c
‡ Growing supermarket space: To expand the Company·s store
estate, actively seeking and developing a pipeline of new stores and
extending the largely under-developed store portfolio to provide an
even better food offer while also growing space for non -food ranges.
c
‡ Active property management: The ownership of property assets
provides operational fl exibility and the exploitation of potential
development opportunities will maximise value. These areas are
underpinned by Sainsbury·s

strong heritage and brand which consistently sets it apart from

major competitors. A passion for healthy, safe, fresh and tasty food,
the Company·s values, innovation and strong ethical approach to
business are what customers want and expect from Sainsbury·s.
Despite current economic conditions these values remain important
for customers who give Sainsbury·s most credit among the four major
supermarkets for addressing the issues of most concern to them .

TOP COMPETITORS :-
c
The following companies are the major competitors of J. Sainsbury
plc

Tesco PLC
Wm Morrison Supermarkets PLC
Asda Stores Limited
Marks and Spencer Group plc
NEXT plc
Somerfield
c
c
Key Progress and Achievements :-
c
Great food at fair prices
c
‡ Over 18 million customer transactions every week.

‡ Market share now circa 16 per cent.

‡ Product availability and customer service are measured in all

stores on an ongoing basis. maintained high performance levels in
these areas and during the year, price perception recorded the
biggest improvement of all metrics tracked.

‡ Universal Appeal delivered through ¶good, better best· tiering of

Sainsbury·s ¶basics·, standard Sainsbury·s and ¶Taste the difference·
sub-brands.
c
Best for food and health
c
‡ ¶basics· sales up60% year-on-year in fi nal quarter of year.

‡ ¶1 per cent fat· milk, launched in April 2008, is now consumed in

approximately 2.5 million UK households ëc
c
c
Sourcing with integrity
c
‡ Sales of RSPCA Freedom Food chicken are up 130% year-on-year.

‡ In February 2009 Sainsbury·s became the fi rst major supermarket

to stop selling eggs from caged hens ëc
c
Respect for our environment

‡ Over 200 stores have achieved savings of over 53,000 tonnes of CO2
in 2008.

‡ On track to send zero food waste to landfill by the end of 2009.

Accelerating the growth of complementary non-food ranges and

services

‡ TU clothing: over 40 per cent of customers bought a TU product

during the past year up around 20 per cent.
‡ Sainsbury·s Bank delivers post-tax profi t of £4 million (50 per cent
share of joint venture financial services operation).
c
Reaching more customers through additional channels
c
‡ Accelerated growth of convenience chain with 50 new stores
planned in 2009/10 and 100 in 2010/11.

‡ Online food home delivery service sales up by over 25 per cent year -
on-year.

‡ Online food business now annualising at over £500 million.

‡ Operates from 169 stores covering 88 per cent of UK households.

‡ Non-food online launching in first half of 2009/10.

c
Growing supermarket space

‡ Over four per cent gross space growth achieved in 2008/09 and on
track for over five per cent in 2009/10.
c
Active property management
‡ Over £750 million of gross property transactions completed.
c
Making a positive difference to our community
c
‡ the company raised over £10m this year in support of Comic Relief.
The Company is the charity·s largest corporate partner having
donated more than £40 million in the last ten years.

‡ Active Kids: the company have now donated over £70 million worth
of sports equipment and experiences to schools, nurseries, Scouts and
Girlguiding UK groups through our Active Kids scheme which was
launched in 2005.
c
A great place to work
c
‡ the company now have2000 colleagues participating in You Can,
the Company·s umbrella brand for established and new initiatives
supporting job opportunities for the long-term unemployed and
disadvantaged, and skills development for both new and existing
colleagues.
c
Sainsbury·s goals :-
c
cAt Sainsbury·s they will deliver an ever improving quality shopping
experience for their customers with great products at fair prices.
they will exceed customer expectations for healthy, safe, fresh and
tasty food, making their lives easier every day.
c
As a leading food retailer they focus on ´food and Healthµ

They committed toµ sourcing with integrityµ

They source from around the world and sell in the uk they have to
show ´respect for our environmentµ

Play an active role in the communities that we serve ´making a

positive difference to our communityµ

They make sainsburys ´a great place to work ´ for collegues

They believe ´our values make us differentµ
Its AIM was to lead on quality and variety, and service. ¶During this
phase, Sainsbury does not want to lead on price, which could only
slow down the investment programme. Equally it has concluded that
it must continue to charge highly competitive prices·.

Developing a winning fresh food strategy requires a suite of

integrated components. The system is more than the sum of its parts.
For example, marketing skills need to be complemented with
improved demand and supply forecasting capabilities. Similarly,
developing a collaborative relationship between retailer and supplier
is pointless unless leveraged to generate higher rates of product
innovation.c

Competition based on new business designs also encourages

product/service diversity. Traditional product-based competition in
industries such as the food industry inevitably leads to price driven
competition. It is difficult to maintain product and quality diversity
when all firms are operating under the same business model. In fact
it could be argued in the fresh food industry that new
products/services will typically be associated with innovation in
business design.

The retailers and their suppliers who together are building the
capabilities to underpin these new systems are reaping the rewards.
They are building agile companies that together form chains that are
beating their competitors.

Sainsbury, being a little smarter than most, knew they had to get out
of this profit trap and thought they knew how. Their strategy was to
create a perceived added value for Sainsbury over its competitors.
This would therefore create a preference, which would allow a
premium to be charged, which in turn should lead to more profits.
This strategy they developed and executed through a programme of
store expansions and improvements, own-label development and
advertising throughout the 1980's.

Their policy on own label was interesting - Apart from M&S (who
only sell own-label) Sainsbury was the first to see its potential for
yielding greater profits than proprietary brands. They also saw the
oppertunity for more control of, and less reliance on, proprietary
brand manufacturers.

They developed own-label from being poorer-quality, cheaper

versions of proprietary brands to at least parity or even better quality
than their equivalents. That done they then used them as exemplars
of 'Sainsbury's' policy on quality, which they could exploit as a
differentiator vs. other stores. Here's the campaign (that's actually
still running - though now more recognisable on TV) that was mould-
breaking in its time (1980) .

The strategies above indicate that Sainsbury generally follows

competitor prices. It said that the discounters, Asda and Tesco
generally led price changes. In the cases where Sainsbury led price
reduc-tions, others main competitors would react within the week.
Sainsbury told us that on core items where prices were well known, it
had to react to price changes as these popular KVIs were crucial to
price per-ception. Some lines were consequently sold below cost
because of competitive pricing pressures,particularly on budget own -
label lines.

cFrom 7 March to 25 July 1999 Sainsbury had 8,512 promotional

offers, averaging 532 per week.These were 3,374 special offers, 3,514
multibuys, and 1,624 extra Reward points. These were planned in
advance as part of the overall marketing strategy. On produce and
meat, Sainsbury would support items where there was an excess of
supply. The cycle of promotions was planned in advance. Typically
non- perishables were promoted for four weeks, and perishables for
two to four weeks.

sainsbury said that it had various store designations but followed one
pricing policy except for two instances. First, the ¶Local· fascia stores
might charge a higher price on convenience product (about lines, at a
per cent higher price). Second, a number of stores facing particularly
active local competition were allowed to charge lower prices on some
200 to 300 popular product lines.