UK Retail Food Sector

A Competitive and Strategic

Analysis with Core Focus on
Tesco and Sainsbury

2011-2012

Dissertation by:

JIGAR .C.DHABALIA
1006497
Contents

Preface
......
4
.
Acknowledgement ..... 5
1. Research Methodology
1.1 Research Objectives ....

1.2 Research Design ....

1.3 Research Methodology ..

....

2.

Literature
Review.

6
6
7

3. Introduction to Retail Food Industry

3.1Introduction to Retail Food Industry in UK.

3.2Size of UK grocery market .

3.3 Number and Sectors of grocery stores in UK

.

10
11
12

4. Competitive Analysis of Retail Food Industry

4.1Competitive Analysis of Retail Food Sector in UK
..
4.2Analytical tools for competitive analysis
..
4.2.1. PESTEL Analysis .
..
4.2.2. Porters five Force Analysis ....
..
4.2.3. SWOT Analysis .........
..
4.3Assessment of top two players on the basis of no of
stores

14
23
24
26
28

30

2 | Page

4.3.1. Tesco ......

.
4.3.1.1. PESTEL Analysis

4.3.1.2. Porters five Force Analysis

4.3.1.3. SWOT Analysis .

.
4.3.2. Sainsbury ..........
..
4.3.2.1. PESTEL Analysis .

4.3.2.2. Porters five Force Analysis

4.3.2.3. SWOT Analysis .

.

31
32
39
41
46
47
51
54

5. Strategic Analysis of Retail Food Industry

5.1Strategic Analysis of Tesco and
Sainsbury
5.1.1. Tesco ......
.
5.1.2. Sainsbury ..........
..
5.2Evaluation and
Recommendations

6.

56
56
58
60

Conclusion
62
.
References ..
...
Books Referred
..
Web Resources
.

64
66
67

3 | Page

Some of the best music was composed by Beethoven.

He was deaf.....
Some of the best poetry was written by Milton.
He was blind....
One of the greatest Leaders was Franklin Roosevelt.
He served from a wheel chair...
It is up to us how we turn our SCARS into STARS!!!!

Preface
With the same note, to make the best of my academics from
Masters of Management and as a part of my course curriculum, I
had prepared a Dissertation. The objective behind preparing this
Dissertation is to relate the theoretical concepts taught in
classroom to their practical application. Further,

Life is like a flute, it may have several holes and emptiness.

But if we work on it, the same flute can produce magical
melodies.....

Similarly,

education

nurtures

talent

through

learning

and

experiencing that is personally meaningful to each individual. My

practical study is a matter of application, introspection and
experience.

4 | Page

My work in this project is, therefore, a humble attempt towards this

end.
In spite of my best efforts there may be errors of omissions and
commissions, which may please be excused.

Acknowledgement
It is truly said,
By the time we realize the value of people around us,
it might be the time for them to leave...
So one should never miss a chance to say.....
THANK YOU!!

Hence, acknowledgement presented here, is an effort to thank all

such people who contributed to my project in one way or the other.
First and foremost, we would like to thank almighty for blessing me
with competitive senses a platform to spruce myself.
I would also like to thank my parents for their silent extensive
support provided during preparation of this project.
I am heartily grateful to respected director Adina Luila for providing
a wonderful, challenging and learning environment in Management
as I would have never got a chance to face and stand by the
competition and get prepared for it.
Also, I would like to thank my internal guide Prof. David Logan,
whose direction, positive value additive criticism and encouraging
remarks, made me through hard- earned success. Thank you for
being a True Guide....

5 | Page

My extended appreciation, to staff members of librarian for long

hours support in library and last but not the least, administrative
staff for their backend everlasting support.
NAME: Jigar Dhabalia
DATE: 2/9/2011
SIGNATURE:

Chapter 1: Research Methodology

This chapter includes the Research objectives, Research Design
and the Research Methodology.

1.1 Research Objectives

Primary Objective
To study UK retail food sector in brief and conduct strategic
and competitive analysis with special reference to top two
retail supermarkets namely Tesco and Sainsbury.
Secondary objectives
To conduct competitive

analysis

through

PESTEL

Analysis, Porters five force Analysis and SWOT Analysis.

To conduct strategic analysis of retail food sector by
studying Business unit level strategies, corporate level
strategies and international strategies and strategy
development. analyzing the study the different areas
where the bank faces credit risk and to find the area
where they faces credit risk the highest

1.2 Research Design

Research design
6 | Page

This

project

includes

the

descriptive

and

exploratory

research design
Descriptive: As it is a form of conclusive research that aims
to describe various strategies followed by Tesco and
Sainsbury.
Exploratory: As it explores various new dimensions in
various aspects through tools like PESTEL Analysis, porters
five forces and SWOT Analysis.

1.3 Research Methodology

Data Sources
Secondary data: Secondary data was collected from various
magazines, internet, journals and the thesis carried out by
professionals.
Sampling plan
1 Target Population: Top two retail hypermarkets namely
Tesco and Sainsbury.
2 Sample Size: The study is based on the data collected for
two companies namely Tesco and Sainsbury.
3 Sampling Method: The sampling method used here is
stratified sampling method as the companies are selected
as per the number of stores. Tesco and Sainsbury are the
top two companies having the highest number of stores as
per research by BBC Panorama special programme called
Supermarkets: What price cheap food?
4 Elements: supermarkets.
5 Instrument of data collection: Websites and Journals
6 Analytical tool: Graphs like pie charts, & tables have
been used to analyze & interpret the data when necessary.
7 | Page

Chapter 2: Literature Review

This dissertation is divided into five chapters starting from
Research methodology. This chapter mainly focuses on the
research objectives, research design and research methodology
used in the Project.
The chapter Introduction to Retail food Industry gives a brief
overview of UK retail Food Industry. The total revenue of UK food
retail industry was approximately $186.1 billion in 2009, with a
compound annual growth rate (CAGR) of 4.2% for the period of
year 2005-2009. It is expected to slow down, with projected CAGR
of approx 3.4% for the five-year time duration ranging from 20092014. This will drive the industry to a value of $219.4 billion by the
end of 2014. (Data Monitor- June 2010) 1 .This chapter also focuses
on the size of UK Grocery market, number of Grocery stores and
also shows how big each sector is on the basis of the research
conducted by IGD research in the year 2010.
The chapter Competitive analysis of Retail food Sector
focuses on the three major components which can be derived from
PESTEL Analysis, Porter five forces Analysis and SWOT Analysis.
These major components are drivers for change, sector structure
and internal competencies and characteristics as derived from
1 Food Retail Industry Profile: United Kingdom, June 2010, p1, 35p, [online] Business
Source Premier [Accessed August 26th, 2011]

8 | Page

competitive analysis of Retail sector in UK 2. It also focuses on the

competitive analysis of Tesco and Sainsbury using PESTEL Analysis,
Porter five forces Analysis and SWOT Analysis.
The chapter Strategic analysis of Retail food sector focuses
on the strategies of Tesco and Sainsbury. These strategies are
analyzed in three parts namely Business-level Strategy, CorporateLevel and international Strategy and strategy Development.
The dissertation ends with the conclusion that the UK food retail
industry is distinguished by an immense high competition and lowprice strategies. Within the highly turbulent retail segment, where
companies are required to pursue both cost leadership and
differentiation

strategies,

Tesco

still

maintains

to

hold

its

leadership position. While talking about Sainsbury, its performance

(in terms of both image and profit) has improved tremendously.
However, it is still not insulated to many outside risks like
recession and rising material costs as highlighted in PESTEL
analysis.

2 Competitive analysis of the Retail sector in UK (2003), prepared by Professors Steve

Burt and Leigh Spark and submitted to Department of trade and Industry retrieved
from :http://www.bis.gov.uk/files/file11029.pdf

9 | Page

Chapter 3: Introduction to Retail Food Industry

This chapter gives us the highlights about the retail food Industry.
It focuses on an overview to food retail industry, the size of UK
Grocery Market, number of grocery stores in UK and how big each
sector is.

3.1 Introduction to Food Retail Industry in UK

Food retail industry lost pace in 2009 to moderate growth levels.
This is expected to remain steady throughout the forecast period.
The

retail

food

market

in

UK

consists

of

hypermarkets,

supermarkets and discounters accounting for approximately 60%

of all sales.
Discussing about the facts and figures of UK food retail industry, it
had a total revenue of approximately
$186.1 billion in the year 2009. The
compound annual growth rate (CAGR)
was 4.2% for the period ranging from
2005-2009. During same time frame the
CAGRs for French and German were
2.9% and 2.1% respectively to reach respective values of $224.6
billion and $234.8 billion in 2009.

10 | P a g e

Most important sector of UK Food Retail industry i.e. hypermarkets,

supermarkets and Discounters proved to be the most rewarding
sector for UK in the year, accounting for total revenues of $114.1
billion, which equals to 61.3% of the industrys overall value. While
comparing them with the convenience stores and gas stations,
they generated revenues of $39.2 billion in the year 2009,
equivalent to 21.1% of the industries aggregate revenues.
It is forecasted that the performance of the UK food retail industry
is going to decelerate, with an anticipated CAGR of 3.4% for the
five year period 2009-2014. This deceleration will drive the
industry to the value of $219.4 billion by the end of year 2014.
While the German and French industries are forecasted to be
accelerated with CAGRs of 2.5 % and 3% respectively, during the
same period of time to reach the respective values of $265 billion
and $ 260 billion in the year 2014. (Data Monitor- June 2010) 3

3.2 Size of UK Grocery Market

The worth of UK grocery market was 150.8bn for the year 2010.
This is an increase of around 3.1 % over the year 2009. While
looking at food and grocery expenditure, it accounted for 53p in
every 1 of retail spending. 21p of every 1 spent in food and
grocery is spent in convenience stores.

3 Food Retail in UK (2010, June) retrieved from www.datamonitor.com

11 | P a g e
UK Grocery Market Performance: IGD Research 2010

3.3
Number
and
Sectors of Grocery Stores in UK
The number of grocery stores in UK is 91,509. These grocery stores
can be divided into four sectors further namely convenience
stores,

traditional

retail,

hypermarkets,

supermarket

and

superstores and the online channel. Each of these are defined as

follows.

12 | P a g e
UK Grocery Retailing - Store Numbers & Sector Value

1. Convenience stores:
Convenience stores are the stores

with

the sales area of less than 3,000 sq. ft.

These

stores are open for long hours and they engage themselves
in

selling

products

from

at

least

different

grocery

categories. (e.g. Londis SPAR, Co-operative Group).

2. Traditional retail:
Traditional Retail stores are the stores with the Sales area of
less than 3,000 sq ft. For example: grocers, news agent, offlicenses, and some forecourts.

3. Hypermarket, supermarkets & superstores:

Hypermarket are the ones whose size is over 60,000 sq. ft.
Superstores are bit smaller and have sales area above
25,000 sq. ft. and supermarkets are the ones which have a
sales area of 3000-25000 sq. ft.
13 | P a g e

All of these engage themselves in selling mainly grocery

items. Non-food items are also sold. For example: ASDA,
Tesco, Sainsbury etc.

4. Online channel:
This sector includes selling with the help of Internet.

Chapter 4: Competitive Analysis of Retail Food

Sector
4.1 Competitive Analysis of Retail Food Sector
This chapter focuses on the three major components which can be
derived from PESTEL Analysis, Porter five forces Analysis and
SWOT Analysis. These major components are drivers for change,
sector structure and internal competencies and characteristics. It
also focuses on the competitive analysis of Tesco and Sainsbury
using PESTEL Analysis, Porter five forces Analysis and SWOT
Analysis.

14 | P a g e

The major subject matter of retailing is the subject matter of

drivers of change. It effects the environment within which retailing
operates. The major effect can be summed up as concentration,
price and cost pressures and complication.
These drivers for change will impact, and will have impacted on,
the sector structure. The retail sector can be recapitulated as
innovative, polarized, expanding, polarized & open. The sector is
expanding from both the dimensions i.e. vertical as well as
horizontal, as the retailers engages themselves to take on more
activities and develop more broader strategies. Polarization in the
sector improves as the biggest companies continue to grow in
scale as they operate in larger range. Innovation too is very
important which has occurred at operations, product and brand
levels. Finally, the UK market is open, as it allows the overseas
retailers for easy entry and thereby increasing competition.
The processes by which retailing is done and all the activities are
undertaken are also affected by drivers for change. The Retailers
can now easily manage various aspects of their businesses and
developing their approaches practices and systems. They did this
in terms of their own processes, outsourced or partnered activities
and by taking advantage of their scale, data and reach.

15 | P a g e

Thus these are the major three aspects of competitive analysis

which we will look at in the following section.
1. Identifying and assessing the major drivers for change
which influences the retail sector :

Identifying and

assessing the major drivers for change which influences the

retail sector includes various factors which are external to
individual businesses within the sector. But these factors help
to shape the broad competitive environment within which
retailers operate.
2. Structural characteristics of the retail sector: This
allows analysis of the organization in terms of ownership,
competitive structure and scope of retail sector mapping
the shape and resource base of the sector.
3. Internal characteristics and competencies
retailing:

requires

recognition

of

core

within

operating

competencies in order to gain success within retailing.

This sort of analysis will help to have an accurate view of the retail
activity and competitiveness.
1. Drivers for Change
The analysis starts with an assessment of the environment within
which a business operates. This report focuses on using the
framework considering the major drivers for change.

16 | P a g e

The

Change

within

each

of

these

interconnected

drivers

contributes to the overall broad environment in which retailing

operates.

i.

Political Trends and Structure:

This is an important driver for change for the retail segment.
We will have a look how various structure and trends impact
the change. The further out-of-town development will be
restricted by the Planning policy; the Cost structures and
customer use will be impacted by the Transport policy (e.g.
potential car park charging); the policies of Government
regeneration and inclusion includes need for food retailing
(big stores, local food); the policy of Competition has and will
continue to look at competitive structure and pricing ; Cost
structure will also impacted by business related tax increase;
Pricing structures will be affected by possible introduction of
VAT on food;
Moreover, cost structure will also be influenced by minimum
wages, especially for smaller operators. Thus these are the
major political structure and trends which acts as drivers of
change for food retail industry.

ii.

Economic Structure and Trends:

17 | P a g e

Economic structure and trends is also an important driver

which also affects the food retail industry. The retail food
industry will have a limited impact of recessionary pressure
as food is an essential product; the consumers who are
Income constrained, seeks out low priced/good value food
options rather than the superior products; the consumers
who have Time constraint uses home delivery internet
suppliers. Thus these are the important drivers which have
impact on food retail industry.
iii.

Socio-Cultural and Lifestyle Aspirations:

The major socio cultural and lifestyle aspirations drivers are
Changing

time

budgets

influence

when

(and

where)

consumers shop and stimulate convenience product ranges

and services ; Health related issues , stimulates the growth of
farm assured products, organic ranges, farmers markets etc. ;
Service expectations have risen and must be met ; Core
cooking skills diminishing, stimulating readymade meal
demand, yet at same time cooking programmes stimulate
demand for particular products ;Widening of travel horizons
creates demand for nontraditional food products and food
styles .
iv.

Demographic Structures and Trends

The major demographic structure and trends relates to
Changing size of family and household unit influences
products purchased, pack size and shopping behavior.

v.

Product and Process Innovation:

Drivers related to product and process innovation includes
Packaging

and

presentation

innovation

which

helps

in

18 | P a g e

stimulating sales ; Innovation in product use is high e.g.

convenience meals steam cuisine etc; Use of technology in
supply chain increases reach of product sourcing ;Technology
infrastructure and application high within the sector ; Store
vi.

innovation quite high in terms of product display etc.

Environmental Changes and Trends
The environmental drivers of changes and trends are the
awareness of waste disposal is high. (reinforced by EU
legislation) and Energy efficiency is sought in larger stores

2. Sector Structure and Control

The structural characteristics of the retail sector moderates the
influences of the external environmental drivers and the ability for
retail organizations to react to the opportunities and threats
created by these changes. This adds to competitive investigation
through an understanding of the implications for organizations
arising from problems surrounding scale, scope, the organization of
businesses and resources. Major considerations are:

i.

Size and Scope

One of the major considerations is that the Market size is
approximately 93-97 billion which shows steady low digit
growth which is less prone to peaks and troughs as compared
to most other sectors; Due to sales of high value product and
continued product innovation and product development the
19 | P a g e

natural growth in the market is stimulated; moreover with the

extension in product range into non-food ranges and core
food extension, the large stores growth also has been driven.

ii.

Competitive Structure.
Now a days most of the sales is done through large units
typically the grocery based superstore. Also most of the
chains are now developing range of targeted shop formats in
order to maintain growth and suit local environments. (Small
towns, in-town markets, and hypermarkets) . Major Players
consolidation at National level took place during the time
duration of 1980s and 1990s, further national consolidation is
possible but format fit will establish viability and it may
attract monopoly consideration unless a chain is broken up.
Moreover International involvement is more likely.
Rather than competing in the superstore market most of the
Middle-sized tier of chains focuses on particular formats (e.g.
Co-op and Somerfield on neighborhood store/convenience
market). Moreover although issues are emerging, growth of
temporary farmers markets provides specialist niche and
allows direct to customer sales.
With the changing world demographics and scenarios, and
increasing competition, on-line experimentation is increasing.
Tesco appears the most fully committed and fully resourced
company as compare to other related companies.

iii.

Organizational Structure and Competition

The food retail sector is dominated by big four with 68%
of grocery market which is around 55% of food market.
20 | P a g e

Among the big four i.e. Tesco, Sainsbury, ASDA and

Morrison, Tesco is the most dominant player. Its share in
grocery market is approximately 25% and food market is
approximately 20%.
Although most firms have regional dominance they are
now extending their operations from old regional locations
to national levels (except Waitrose). Looking at the
examples of Spar, Londis and Mace, the independent
sector is now more getting organized via voluntary chains
and buying groups.
Unless strong local customer franchise is produced,
traditional true independents are decelerating just as the
specialist trades (Butcher, Fishmonger).
iv.

International Opportunities and Threats

International arrivals major focus is format driven. It does not
include the main line superstores and supermarkets. It
focuses on limited line discount format and cash and carry or
wholesale club format. Non UK retailers like Aldi, Netto and
Lidl dominates the limited line discount segment.
The arrival of Wal-Mart focused attention on the price
structures and reinforced move into non-food ranges as well.
But hyped Devastation of the sector is yet to take place.
In spite of internationally recognized expertise of UK grocery
retailers, the companies are moving outside UK at a very
slow

pace.

Tesco

has

developed

various

international

business strategies and is moving towards international

business in the emerging markets but the future of Sainsbury
USA operation is still very vague.

21 | P a g e

Also the British food retailing is found quite to be stereotyped and

boring in its presentational skills. The potential for good
merchandising, local sourcing and slow food is fairly high as
response to sameness.
3 Internal Characteristics and Competencies
An analysis of internal characteristics and competencies within
retailing provides an assessment of core competencies and
capabilities. Although operational areas are intrinsically interlinked, for purposes of analysis core competencies are identified in:

i.

Retail Operations
The companies are now moving to larger units on edge/ out
of the town sites because of economies in cost additional
service benefits. Apparent move to multi-format channel
operations from single format operation (superstore) had
been seen. Moreover there has been well-built centralization
of decision making all over the sector.

ii.

Employment Characteristics
Part-time

employment

is

high,

approximately

75%

particularly at store level. There has been increase in labor

turnover levels but strong retention policies have been
followed like higher hourly rates etc.

There has been

increase in graduate recruitment for store management and

head office positions.
22 | P a g e

iii.

Marketing Activities
The segmented retail brand has been developed in very high
proportion. Moreover, there has also been high segmentation
of shop formats and larger shops for understanding the
customers in-store behaviors.
The product ranges have been widened especially in nonfood items and also there has been addition of variety in core
ranges. Addition of services and general increase in service
level like checkout speed, car parking policies and range of
trolleys etc. are also observed.
Customization

has

also

increased

with

the

scope

for

customization salad bars. And now you can create your own
customized pizza and hot-chicken meals.

The category

management approach has been used to merchandising and

supply chain activities. The concept of price focus is applied
to key product lines so as to increase sales and revenue.
iv.

Supply Chain Management

An analysis of supply chain management within retailing will
also help assessing the core competencies and capabilities. It
has been observed that there is better involvement in and
management of all aspects of the supply chain which is a
very good indicator. Also efficient customer response systems
and

sales

based

ordering

systems

are

implemented.

Centralized distribution systems are taking place via Regional

Distribution Centers. Moreover very advanced systems and
23 | P a g e

procedures are introduced and the companies using them

effectively are seen as industry leaders.
(Source: Competitive analysis of the Retail sector in UK prepared by Professors
Steve Burt and Leigh Spark and submitted to Department of trade and
Industry)

4.2 Analytical Tools for Competitive Analysis

Analytical methods and tools are very vital to ensure that proper
level of consistency and strictness is applied to the analysis. There
are number of considerations that one should be aware of while
making the use of these analytical tools for competitive analysis.
The tool which is used must help the organization to answer the
question for which the tool is being used. Or else it is not worth
using that tool. First the expected benefit of using the tool must be
defined properly. Because if the tool is defined clearly then it is
more likely that the purpose for which analysis is done will be
solved and the objective can be accomplished successfully.
Enough time should be given for collaboration and advance
warning should also be given so that people can accommodate the
analysis as many tools benefits from input and collaboration with
other people, functions or even organizations.
Using of these analytical tools may be time consuming as each and
every aspect is to be considered properly. The key stakeholders
like the board, senior directors and company departments should
be aware of this analysis. Only then they will be able to provide
proper commitment which is very essential to complete the
analysis.

24 | P a g e

The main motive of using this analytical tool is to sharpen the

focus

of

the

methodological

analysis
and

and

balanced

to

make

sure

approach

is

that

proper

followed.

These

analytical tools rely on historical data to predict the future

assumptions. It is very essential to take care when interpreting
results of this analysis.
The tools which we will be using for our report for competitive
analysis are as follows:

Tools used for competitive analysis

4.2.1 PESTEL Analysis

PESTEL analysis refers to the scan of external macro-environment
in which a business operates. It helps to understand the political,
economic, socio-cultural and technological environment in which
the organization operates.
It can be mainly used for the purpose of evaluating the market
growth or decline and also the position, potential and direction for
a business.

Political
Factors

Includes government regulations and legal issues

and define both formal and informal rules under
which the firm must operate. Some examples are:

25 | P a g e

Economic
Factors

Social
Factors

Affects the purchasing power of potential

customers and the firms cost of capital. some
examples are:
Economic Growth
Inflation rate
Exchange rates
Interest rate
Includes the demographic and cultural aspects of
the external macro environment. These factors
affect customer needs and the size of potential
markets. Some social factors include:

Technologi
cal
Factors

Tax policies
Environmental Regulations
Political Stability
Trade Restrictions and Tariffs
Employment Laws

Health consciousness
Career attitudes
Emphasis on safety
Age distribution
Population growth rate

Technological factors can lower barriers to entry,

reduce minimum efficient production levels, and
influence outsourcing decisions. Some of the
technological factors includes:

R&D activity
Automation
Rate of technological change
Technology incentives

These factors of PESTEL analysis can be classified as opportunities

or threats in a SWOT analysis. It is often practical to complete
PESTEL analysis before completing SWOT analysis.
The four paradigms of PEST analysis varies in importance
depending on the type of the business. Like, social factors are
26 | P a g e

more relevant to consumer business or B2B business near the

consumer end of the supply chain. While for a defense contractor
or

aerospace

manufacturer,

political

factors

are

of

more

significance. Thus, the level of significance depends on the type of

business.

4.2.2 Porters Five Force Analysis

Michael Porter of Harvard Business School developed Porters five

forces of competitive position analysis in the year 1979 for the
purpose of assessing and evaluating the competitive strength and
position of a business organization.
This theory is based on the concept of five forces. These five forces
helps determine the competitive intensity and attractiveness of
the market. It helps to identify where power lies in a business
situation. Porters five forces is helpful in comprehending the
strength of an organizations current and future competitive
position which it may look to move into.

27 | P a g e
Porter Five Force Analysis

Strategic
analysts
Porters

use
five

forces

to

examine whether new

products or services are

potentially

or not. By understanding in

which

company has power, it can

be

profitable

area

used

also

the
to

identify areas of strengths so as to improve weaknesses to avoid

mistakes.
Each of these five forces are explained below:

Suppliers An assessment of how easy it is for suppliers to

drive up prices. This is driven by:
Power

Buyers
Power

the number of suppliers of each essential

input
the uniqueness of their product or service
the relative size and strength of the supplier
The cost of switching from one supplier to
another.
An assessment of how easy it is for buyers to drive
prices down. This is driven by:
the number of buyers in the market
the importance of each individual buyer to
the organization
The cost to the buyer of switching from one
supplier to another.
If a business has just a few powerful buyers, they
28 | P a g e

are often able to dictate terms.

Competiti
ve
Rivalry.

The key driver is the number and capability of

competitors in the market. Many competitors,
offering undifferentiated products and services, will
reduce market attractiveness.

Threat
of
Substituti
on.

Where close substitute products exist in a market, it

increases the likelihood of customers switching to
alternatives in response to price increases. This
reduces both the power of suppliers and the
attractiveness of the market.

Threat of
New
entry.

Profitable markets attract new entrants, which

erodes profitability. Unless incumbents have strong
and durable barriers to entry, for example, patents,
economies of scale, capital requirements or
government policies, then profitability will decline to
a competitive rate. 4

4.2.3 SWOT analysis

A

SWOT

analysis

helps

in

understanding

the

strengths,

weaknesses, opportunities and threats involved in a project or

business activity.

4 [Porters Five Forces Model, Available at:

www.businessballs.com/portersfiveforcesofcompetition.htm (Accessed 12/8/2011)]

29 | P a g e

It commences by defining the objective of the project or business

activity and identifies the internal and external factors that are
important to achieving that objective. Strengths and weaknesses
are internal to the organization, while on the other hand
opportunities

and

threats

are

external.

These

strengths,

weaknesses, opportunities and threats are plotted on a simple 2x2

matrix.

SWOT analysis diagram

SWOT Analysis

The following things are to be kept in mind while using SWOT

analysis.
It is to be ensured that only specific, verifiable statements are
used. For example instead of using good value for money,
price is 2 per unit lower than competition.
30 | P a g e

 All the Internal and external factors are prioritized so that time
is not wasted on the factors which are not important and is
utilized concentrating on the most important factors. It should
also include proper risk assessment so as to ensure that high
impact threats and opportunities are clearly identified and dealt
with in priority order.
The Issues which are identified are preserved and used later in
the strategy formulation process.
This analysis is mainly used and focused at the project level or
the business activity level rather than that of the total company
level, which may be comparatively less actionable.
SWOT analysis is not a tool which is similar in all the scenarios.
No one tool is likely to fully comprehensive. Thus, a mixture of
options generating tools should be used.

4.3 Assessment of top two players (Retail

superstores) on the basis of number of stores
As per the study conducted by panorama and the BBC news team,
the big four companies i.e. Tesco, Sainsbury, Morrison and ASDA

5 [Source: Strategic Analysis tools: Prepared by Jim Downey and Technical Information
Service October 2007]

31 | P a g e

got permission for 480 stores in England, 67 stores in Scotland, 22

stores in Wales and 8 stores in Northern Ireland.
In two years time span up to

November

2010, Tescos applications for 392

stores got approved. It was three
times more than Sainsbury, which

had

111.

The

application succeeded for Morrison was

41 and it was 33 for ASDA.
This

project

carries

out

the

competitive
assessment
of the top
two

players

on the basis of
number
UK.

of

As

stores

in

per the study

by
panorama
and

the

BBC

news

team

top

two

companies

are Tesco

(392
stores) and Sainsbury (111 stores). (BBC Panorama, 2010)

4.3.1 Tesco
Overview
Tesco is one of the largest food retailers in the world. It had
revenue in excess of 54 billion in 2009 and employed over
470,000 people. Tesco operates approximately in 4331 stores in
32 | P a g e

around 14 countries around the world. It operates primarily in USA,

Europe and Asia and its Head Office is at Hertfordshire, UK.
As per the data
collected by Data
monitor (2010), the
commercial network
portfolio of Tesco
comprises:
Over 960 Express stores
170 metro stores
450 Superstores

Which sells approx. 7,000

products including foods at
suitable localities;
Which sell a variety of food
products in town and city
centers;
Which sell both food and nonfood items including books and
DVDs.

Tesco has its online portal namely tesco.com and tescodirect.com

through which it provides online retail services. It provides
broadband I internet connections and also financial services
through Tesco Personal Finance (TPF).
Tesco was founded in the year 1919. It launched its first store in
Edgar, London, UK in the year 1929 (Tesco, 2010). Over the
decades it has evolved to become the market leader within the UK
food retail segment (Datamonitor, 2010). The following pie chart
represents the comparative positioning of Tescos market share
with other leading players market share (Euromonitor, 2010):

33 | P a g e

Share of Leading Players in UK Food Retail Market

4.3.1.1 PESTEL Analysis

The PESTEL framework presented below analyses the dynamic and
unpredictable environment in which Tesco operates. This analysis
is done by identifying the forces which have impact on Tescos
performance:

Chinas

The recent agreement of China with WTO, promoted

Promotion
agreemen of
Free tTrading

to introduce
to
companies,
Globalization including
benefited Tesco,
the promotion
of freeitself
trading

Recession
Blocs
Negative

Political Factors

encouragingEconomic
trade between
Western and Eastern
Factors

free flow of foreign trades by removing all the

barriers.

With

this

it

encouraged

the

western

blocs by government. It has been presented in the

writing (Lynch, 2003).
Ten more countries got immersed into EU (European
Union) which took place in 2004 for the purpose of

Economic factors are of vital importance as it directly

impacts the buying behavior of customers.
The

UK

economy

was

declared

officially

under

recession in the 2008. However, the substantial

Impact on Tesco

reduction in interest rates by the government helped

34 | P a g e

Recession
Positive Impact

The positive aspect of recession is that people will

now eat out less and eat more at home which
provides opportunities for grocery retailers like Tesco
to increase their output (Guardian, 2010).

on Tesco

It is much obvious that food is the last thing that

UK Spending on Food as % of Overall Consumer Spending
2004 to 2008

The economic downturn has been brought to light

with the assistance of the following GDP growth graph
since 1989 (Mintel, 2009):

Age Factor

UK GDP Growth 1989-2009

Social Factors

There are more retired people than children in UK as

per the analysis conducted, representing the baby
Boom generation (Herald Scotland, 2010).
It is seen that the ageing population is discouraging

Attitude
towards food

for the food and the older people tend to eat less.
The attitude of consumers towards food is continually
changing

as

they

have

become

more

health

conscious.
Tesco considering this factor has accommodated the

Use of Internet

demand of
consumers forFactors
organic food. It provides
Technological
Technology is one of the key macro-environmental
factors that have directly influences the supply chain,
operations

and

processes

of

grocery

and

food

retailers.
Usage of internet for online grocery retailing has

35 | P a g e

Loyalty
Programs - IT
Mobile
Technology
Online Retail
Shopping

Loyalty

programs

introduced

with

the

help

of

information technology discourages customers from

switching over to their competitors (Sun, 2009).

Another technology - Mobile technology has also been

a good platform for distribution within food retailing
and it is increasing day by day.
Tesco uses an application named New Wine App which
developed
Cortexica
Vision Systems
was
Due to
increasedby
access
to broadband
internet insince
UK,
online

retail

shopping

has

gained

considerable

popularity.
As per the analysis by Keynote 2010 the number of
broadband users in the country is 15.5 million which

Carbon
Footprint

Use of Reusable
Bags

accounts Environmental
70% of the overallFactors
market.
Environmentally friendly packaging is being promoted
by the Government.
As per the data collected by the Office for National
Statistics (2010), the percentage of consumers using
bags
has raised
from
71% to 74%.
reusable
Tesco has
added
carbon
footprint
data on dairy
products, potatoes and orange juice due to the
consumer awareness of the carbon footprint of the
firm (Wood, 2009).
And it also aims at expanding it to bread and non-food
items in 2010 (Tesco, 2010).

36 | P a g e

Green club Card Tescos Greener

Points
Living Scheme

Tesco introduced its Greener Living Scheme.

With this scheme it gives consumers advice on
environmental issues, including how to reduce food
waste and their carbon footprint when preparing
meals (Yuthas, 2009).
Tesco rewards its consumers through Tescos green
club card points.
Those Consumers reusing bags, recycling mobile
phones and aluminum cans and preferring bag less
deliveries are being rewarded through these points.

Legal Factors
Since the government has to finance a huge budget
VAT

deficit, it has been predicted that VAT would have to

rise to 20%. (HM Treasury, 2010).
Rise in VAT will also affect the non-food sectors of

Minimum Wage

Tesco, such as clothing.

The

2008

and

2009

combined

up-ratings

have

resulted in an increase in the minimum wage of 15.5%

as per the Low Pay Commission Report (National
Minimum Wage, 2009).
This will in turn result in an increase of operating
costs of supermarkets.

37 | P a g e

4.3.1.2 Porter five force analysis

In order to find effective sources of competitive advantage, an
investigation of the structure of the industry should be undertaken
(Porter, 1985). I have used Porters five force analysis in order to
analyze the competitive environment.
Threat of substitute products and services
The threat of substitutes is considerably low for food items and
medium to high for non-food items in the grocery retail market.
In the food retail market the major substitutes are small
chains of convenience stores, off licenses and organic shops.
But this cannot be seen as a threat to supermarkets like
Tesco that offer high quality products at considerably lower
prices (Financial Times 2009).
Furthermore Tesco is getting hold of these shops by
introducing Express stores in local towns and city centers
creating an obstacle for these substitutes to enter the
market.
On the other hand the threat of substitutes for non-food
items is fairly high (for example clothing). It should be kept in
mind that so long as the economic recession prevails
customers will be inclined towards discounted prices and
hence Tesco is a threat to the specialty shops.
Threat of entry of new competitors
For the food retail industry the threat of entry of new
competitors is low.
38 | P a g e

 A huge capital investment is required in order to be

competitive and to create a brand name. Tesco, ASDA,
Sainsbury and Morrison are the major brands that have
already captured the food retail market. They account for
approx. 80% of all shopping in the UK (Mintel, 2010). So the
new entrants have to produce something impressive at an
exceptionally low price and high quality in order to create
and then sustain (once entered) their market value.

New entrants also have barrier to entry as gaining planning

authorization from local government takes an ample amount
of time and resources to establish new supermarkets.

Intensity of competitive rivalry

The intensity of competitive rivalry in the food and grocery
retail industry is very high. Tesco has severe competition
from its direct competitors, including, Sainsbury, ASDA,
Waitrose and Morrison, which are competing with each other
over price, products and promotions every now and then.
The

following

things

about

the

competitors

must

be

highlighted:
ASDA

is one of the key competitors in this segment with

an increase of market share from 16.6% to 16.8%

during the fiscal year 2010/ 09

Sainsbur has shown an increase to 16.1% from 15.8% and
y

Morrisons to 11.6% from 11.3% through the same

period (Euromonitor, 2010)

The slow market growth essentially means that these

increasing market shares from competitors have intensified
the market rivalry, which is threatening Tescos market
leadership position.
39 | P a g e

 In rural areas where the next-door superstore are some

distance away, majority of the consumers residing in those
rural areas are attracted by such retailers like Somerfield and
Co-op.
Consumers are more interested in discount offers especially
during the time of recession. It was found that hard
discounters like Aldi and Lidl recorded growth of sales of over
25% in the year 2008 (Keynote, 2010).

Bargaining power of buyers

The bargaining power of buyers is fairly high.
The switching cost is very low in cases where products have
a slight differentiation and are more standardized. The buyers
can easily switch over from one brand to another. It has been
proposed that customers are attracted towards the low
prices. Moreover, with the availability of online retail
shopping, the prices of products can easily be compared and
thus can be selected easily.

Bargaining power of suppliers

The bargaining power of suppliers is fairly low.
The position of the retailers like Tesco, Asda, Sainsbury and
Morrison is strengthened further and also the negotiations
are positive in order to get the lowest possible price from the
suppliers. This is mainly because the suppliers are inclined

40 | P a g e

towards major food and grocery retailers and dread losing

their business contracts with large supermarkets.

4.3.1.3 SWOT Analysis

The following is the Strengths, weaknesses, opportunities and
threats (SWOT) analysis of Tesco.
Strengths
As per the statistics of Data monitor 2010, Tesco is
ranked 3rd largest grocery Retail Company in the world.
Its operations are there in around 4331 stores primarily
within the USA, Europe and Asia. Tescos share in UK
grocery retail market in the year 2010 was around
30.7%. (Euromonitor, 2010).
Tesco showed a strong financial performance over years
which underline its strategic capabilities. As per the
statistics of Data monitor (2010), the turnover of Tesco
is 54billion which was an increase of 14.9% when
compared to 2008. The primary strategy that Tesco
adopted is product and services customization as
required by the consumers and thereby in accordance
with the market demands. The following chart depicts
the efficiency in performance of the company over the
last decade with the help of growth in following
indicators ( Fame, 2010):

41 | P a g e

Tesco Yearly Growth in Key Performance Indicators

Tesco also uses the strategy which gives prime focus to
product affordability in order to ensure that the
customer gets the product which can suit their budget
without compromising on the quality aspect of the
product.
By introducing the loyalty scheme called Tesco
Club

Card

Tesco

has

proved

customer

retention

strategy. The company uses the data which is collected

from this loyalty scheme in its powerful CRM systems
named Crucible and Zodiac. This information is then
used for various direct marketing and other promotional
techniques.
Weaknesses
Comparing Tesco with its competitors, it has not been
able to perform well over the last year although being a
market leader. As per the Mintel report 2010, there
42 | P a g e

were number of products which were recalled by Tesco

in the year 2010, which had resulted in a financial loss
as well as damage to its brand image. These products
included companys

value lines, which had been

marketed as a high quality cheaper alternative to key

brands.
The lack of geographic diversification can also be seen
as a key weakness for the firm as the majority of the
operations of the company are concentrated within UK
retail sector only (75% of its revenue fiscal year
2009 ) (Tesco 2009). It becomes a major weakness as it
is subjected to systematic risks of UK market.
Opportunities
Tescos commercial network portfolio is ascending year
on year. Around 620 stores were opened in the year
2009 out of which 435 were international (Mintel, 2010).
By this geographic diversification the company will get
benefit and will be able to improve on its economy of
scale, while minimizing its systematic risk exposure.
Tesco.com is gaining popularity day by day and is
growing

rapidly.

It

accounted

for

over

million

customers in the year 2010 (Guardian, 2010). This

provided an opportunity to the company to attract new
customers and decrease the overall cost and thereby
raising profit.
Tescos focus is on global expansion. This can be seen
from the evidence of it entering into the Indian market.
Entering into Indian market will indeed strengthen its
global market position.

Tesco has signed a limited

43 | P a g e

franchise agreement with Trent, a retailer of Tata group.

Tata Group is one of the largest industrial corporations
in India (Daily Mail, 2010).
It is forecasted that the food retail market will rise from
125 billion in 2009 to 145 billion in the year 2014
(Euromonitor, 2010). It is basically due to fact that even
at the time of recession food retail is toughest segment
as having enough to eat is a basic priority.
Threats
Global financial crises resulted in the reduction of UK's
economy by 2.4% in the year 2009 which is estimated
to contract further by 4.2% by IMF (Poulter, 2009).
Thus, Tescos concentration in the UK market can have
a harmful impact on its financial standings.
With the rise in unemployment and decrease in the
income, the discretionary buying behavior of consumers
has adversely impacted the sales of the company,
particularly in the non-food items segment.
Severe competition prevails in UK grocery market. Even
though Tesco has been leading this market since 15
years

(Mintel,

2010),

it

now

faces

an

intense

competition from its competitors which are gaining the

market share. These competitors includes the rest of
the 'big four' i.e. Asda, Sainsbury and Morrison.

44 | P a g e

After

looking

at

the

key

strengths,

weaknesses,

opportunities and threats, the abridged SWOT analysis can

be seen from the following diagram. 6

Tesco Abridged SWOT Analysis

4.3.2 Sainsbury
6 (Source: http://www.ivoryresearch.com/sample36.php)

45 | P a g e

Overview
J Sainsbury PLC is one of the most leading UK food retailers with
interests

in

financial

Supermarkets,

Local,

services.
Bells

It

Stores,

comprises
Jacksons

of

Sainsburys

Stores

and

JB

Beaumont, Sainsbury Online and Sainsbury's Bank. The Porters five

force analysis discusses briefly its decision to diversify into
convenience stores.
The major objective of Sainsbury is
"to serve customers well and thereby provide shareholders
with good, sustainable financial returns. They aim to
ensure all colleagues have
opportunities
their

to

abilities

rewarded

develop

and

for

contribution

are
their

to

the

success of the business.

The company's policy is to
work

with

all

of

suppliers

our
fairly,

recognizing the mutual benefit of satisfying customers'

needs; a concept which is considered in the Porter's 5
forces analysis. They also aim to fulfill responsibilities to
the communities and environments in which they operate"
(Sainsbury's, 2008).
This is further discussed in a PESTEL analysis.
There are around 455 supermarkets and 301 convenience stores
across the country. The company serves 16 million customers each
week. It employs 148,000 colleagues who are committed to deliver
'Great Food at Fair Prices'.
46 | P a g e

One of the strength which is discussed in SWOT analysis is that it

sells 6bn of British food every year. In order to expand its local
sourcing wherever possible, the company works closely with
smaller- scale suppliers. It has a network of over 3,500 local
suppliers.
Sainsbury also introduced an innovative scheme in May 2006,
named 'supply something new' with the purpose of making it
easier for the small and medium-sized suppliers to gain access to
Sainsbury. They can with the help of that make the locally
produced food available to more customers (Annual Report 2007).
4.3.2.1. PESTEL Analysis

Corporate
Globalizat
Price Fixing
Increasin
Four
Tax
among
ionthe Big
g

Political Factors
Increase in globalization, poses a challenge as well as
an opportunity to Sainsbury's.
The main challenge it will face will be to compete
the unknown
forcesof&price
to give
the best
quality
against
The current
investigation
fixing
between
the/
big four retailers within the UK i.e Tesco, Sainsbury,
Asda and Morrison can have some negative impact to
the industry in general and Sainsbury in particular, as
it is at the forefront of this allegation (Rigby 2008).

allegations is
may
lead to to
a negative
image
These
The government
planning
decreasepublic
the rate
of
corporation tax from 30% to 28% in UK. This will save
big companies like Sainsburys significant sum of
money. (HM Treasury 2008).

Economic Factors

Global Food
Crises

Global food crises has increased food prices all over

the world, which has resulted in rising the purchasing
cost for all the major companies including Sainsbury.
(economist.com 2008 [online]).
Moreover,

this

will

impact

the

margins

of

the

organization and it may lead to passing over the cost

47 | P a g e

Credit Crunch
Competition

Impact of Stif

As Sainsbury also runs a financial services company

with HBOs, credit crunch can have a two way impact
on Sainsbury (Annual Report 2007).
One impact may be that the credit crunch might
reduce the purchasing power of consumers. Even
though they will buy the essentials, but still they may
Due to cut throat competition within every segment of
retail sector, retailes are now giving a lot of incentives
to the consumers (Annual Report 2007).
Due to this the prices will have to be driven down most
of the time thus it will affect Sainsbury.

Queuing
Systems

Use of Internet
eating

Cooking Style
and healthy

Social Factors

These days more emphasis is given on fresh, easy

style cooking. It gives Sainsbury an opportunity to
encourage new recipes and unfussy eating.
Moreover

huge

emphasis

is

also

given

by

the

government to promote healthy eating (eatwell.gov.uk

2008 [online]),
primarily forFactors
for the reason of reducing
Technological
Internet phenomenon has become very popular in
western countries.
As per the prediction, the online retail sales in Europe
will

reach

to

Eur263bn,

with

British

shoppers

accounting for more than a third of all revenue by

2011.
One of the problems with supermarket shopping is that
of the queuing system which the customers often find
themselves in at the checkout.
Companies like ASDA and Tesco has employed Selfcheckout machines which can help solve this problem,
especially for customers who have to queue up for

48 | P a g e

 RFID

(Radio

Frequency

Identification

Device)

RFID

technology can be used for significant benefits to the

supply chain of Sainsbury.
If adopted, this technology

may

lead

to

fewer

inventories for the supermarket firms leading to a

leaner,

more

profitable

organization

Environmental Factors

(directions

Ethical Issues

Carbon
Footprint

These days most of the big western companies gives

more emphasis on reducing the carbon footprint and
increasing energy efficiency (Bream 2008).
This is just not a backburner issue anymore and each
and every firm will have to prove that they are
reducing their impact on the environment.
Ethical Issues like sale of organic food and the ethical
treatment of animals, clearly affect Sainsbury on
various levels.
It means that the growing importance of such issues
will compel companies to cater to those consumers as
well as the consumers governed by price.

Sainsbury Strict Laws on

Interest in Food and Drinks

Legal Factors

Sainsbury

will

have

to

follow

more

and

more

packaging and labeling policies to deal with ever

rigorous and stringent laws on food and drinks.
This will be an additional Burden on the company.

Sainsbury also has interest in the financial services

besides the supermarket concept. Due to this interest
in financial services, there is even more legal scrutiny

Financial
Services

in the operations of Sainsbury bank which indicates

that there is more responsibility regarding legal

4.3.2.2 Porters Five Force Analysis

49 | P a g e

Competitive rivalry
Competitive rivalry
The UK retail market is very competitive and crowded
market. Many companies have entered into non-food sectors
(Rigby and Killgren 2008) and many more are still trying to
get into non-food sectors thereby further intensifying the
competition.
Sainsbury enjoys a market share of 14.9% in the year 2007.
The market share has been steadily increasing since its
restructuring programme in the year 2004 (Annual Report
2007). Although this is a positive trend, it is lagging well
behind its competitor and market leader Tesco and it has to
get more market share.
Sainsburys competitors such as Tesco, Morrisons and ASDA,
the other three big supermarket chain in UK, each have
different competitive advantage over their competitors.
Sainsburys competitive advantage is its reach in the
convenience stores thereby having a larger customer reach.
Sainsbury is also into non-food products such as financial
products. These products face stiff competition from Banks
and building societies as it is not a core business for
Sainsbury.
Barriers for entry
Barriers to entry are extremely high especially in retail Food
sector due to various factors. Firstly, organized retail is
amongst the most sophisticated sectors within the UK and
requires heavy investments, along with significant brand
development, which takes years to establish (Doyle 2002).
50 | P a g e

Secondly, UK has reached its maturity level and is at an

advanced stage within the UK and most of the western world,
which means there is little scope for new entrants to
establish themselves.
Local knowledge plays a very crucial role in the retail food
sector. Hence, foreign firms may find it difficult to replicate.
This

is

corroborated

by

the

presence

of

few

global

supermarkets within UK.

Threat of substitute products and services
The threat of substitute products in the retail food sector is
low as the consumers view it as a necessity in the developed
world and emerging markets
There is continuous innovation in the retail market with
respect to food products or alternative businesses, so as to
increase the buying experience of the customers. This makes
it very difficult to substitute.
The major threat of substitute is an internal industry threat
whereby one supermarket can acquire all the businesses of
other supermarkets.

Buyer power
Due to presence of many competitors and almost every
competitor selling the same product, the Buyer power is
very high in this industry. The only difference is the price
and customer loyalty and increasing adoption of green
standards. Moreover, it is easy and cheap for consumers
to switch over.

51 | P a g e

 As the economy goes further towards recession (O'Doherty

2008) consumers' needs are likely to be given more
weight, increasing their power considerably.

Supplier power
Supplier power is a little complicated as it is difficult to
categorize it. It would be advisable to call it a mutually
dependent relationship as suppliers themselves are huge
companies like Unilever, P&G, and Cadbury etc. which
have huge brand appeal. If any supermarket doesnt sell
these products which are very popular, then consumers
will shift their loyalties to other supermarkets while will
lead decrease in their total sales volume. Hence this
makes the Suppliers very powerful. For eg. when sales of
Cadbury's dairy milk increased through the successful
Gorilla ad campaign (Wiggins and Urry 2007).
Supplier suppliers will not be much considerable because
of

their

sales

volumes

on

dependence

on

these

supermarkets.
4.3.2.3 SWOT Analysis
Strengths
Sainsburys demonstrated real turnaround in its business by
showing thirteen straight quarter of growth (Rigby and
Braithwaite 2008). In the year 2007 it recorded an increase of
7% in its turnover and a huge increase in profit after tax of
450% (Annual Report 2007).
Sainsbury has built an excellent team lead by a very
experienced Chief Executive Mr.Justin King, who is very well
52 | P a g e

known for his work at Sainsburys. (timesonline.co.uk 2008

[online]).
Sainsbury has successfully adopted green and environmental
issues and also started with various recent initiatives like
buying fair-trade bananas (economist.com 2008 [online]).
Furthermore its effort in closing gangmaster (Taylor 2008)
has created a positive effect on general public. Further
Sainsburys enjoys the reputation of an innovative and
positive consumer brand and is like by green activists as well
as consumers.
It

has

strong

advertising

campaign

where

several

celebrities are endorsing its products and has resulted in

increased sales. "With Jamie Oliver, it has been simple for
Sainsbury's to see uplifts in sales of specific ingredients that
have been featured in ad campaigns. Apparently the
supermarket had to order nine tons the equivalent of two
years' supply of nutmeg to meet demand when it appeared
in one of Oliver's hundred-plus ads" (Dickinson 2008)
Weakness
The takeover bid by the Qataris Private equity firm last year
(Arnold and Politi 2008) may have some implications as
people are gravitating towards British Companies and any
prospect of Sainsbury being taken over and governed by a
foreign company may lead to customers changing their
loyalties.
As compared to Tesco, which is more aggressive on global
expansion (economist.com [online] 2008), Sainsburys has
not entered international markets. This is a cause of worry as

53 | P a g e

if they is any problem in regards to food retail in UK, then

there needs be another source of revenue.
Opportunities
Sainsburys senses great opportunity for future growth
through

its

alternatives

businesses

like

investment

in

property (Killgren 2007). Also its goal of 40 million profit

through its bank seems to be a good strategy to pursue.
With increasing popularity of online shopping, e-commerce
seems to be great opportunity as well, since overheads costs
are less and margins are more and it doesnt require heavy
investments.
Threats
Sainsbury

has

environmental

taken
issues.

initiatives
However,

into

green

these

and

require

other
heavy

investment without any immediate benefit. The main issue to

balance both the things, for eg., to curb global emissions Biofuel is an important tool

and moreover its use affects

Sainsburys supply chain also directly. However, a spurt in

bio-fuels has made corn dearer (independent.co.uk [online]
2008) affecting its prices within the UK and thereby making
Sainsburys customers bear the brunt.
Sainsburys operations are subjected to various regulatory
requirements

like

planning,

competition,

employment,

environmental issue, pensions and tax laws and in terms of

regulations over the groups products and services.

5.1 Strategic Analysis of Tesco and Sainsbury

Strategic Analysis is:
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The

process

of

conducting

research

on

the

business

environment within which an organization operates and on the

organization itself, in order to formulate strategy.
-BNET

Business

Dictionary
The strategies of Tesco and Sainsbury's are discussed in three
parts: Business-Level Strategy, Corporate-Level and international
Strategy, and Strategy Development.

5.1.1 Tesco

Business-Level Strategy
The Business-Level Strategy means the competitive strategies of
the company and its choice. Different companies adopt different
strategies. In case of Tesco, it adopts a hybrid strategy as its
business-level or competitive strategy. Tescos main strategy is to
be different from its competitors and at the same time offer lower
prices compared to its competitors. For eg. the website of Tesco or
the store advertisement always focusses on those products which
are cheaper than other stores. Tescos other competitive strategy
is excellent customer service. For this Tesco held a Customer
Champions service where around 800 Tesco champions greet the
customers as they enter the store and help them with any
questions or concerns.
Corporate-Level and International Strategy
Corporate-Level strategy refers to an overall strategy of an
organization and the strategic decision regarding the scope of an
organization. In case of Tesco, due to strong competition in UK
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retail sector in UK and mature markets, Tesco has adopted the

strategy of business diversification. Tesco offers more product
categories and also provides non-food products with grocery. For
eg. In the year 1997 Tesco diversified into offering non-food
business of personal finance and petroleum products. Their
strategy was clear To be as strong in everything we sell as we are
in food. In fact, recently Tesco is focusing more on the non-food
items. As per data, in the third quarter of 2005 non-food products
shows excellent sales growth. In the year 1999 Tesco went online
and started its e-commerce website Tesco.com. Their goal was
clear To be an outstanding international retailer in stores and
online. Further, due to rapid globalization, Tesco adopted the
strategy of globalization and further diversified into different
countries. As per Tesco website (Tescoplc.com), currently they
operate in 14markets across Europe, Asia and North America.

Strategy Development
The method of strategy development can be classified into 3 types
: internal development, acquisition and joint development.
Internal development
Due to rapid advancement in technology, Tesco understood
that it requires adopting new technology if it wants to
enhance its efficiency and develop its capability. Thereby it
upgraded its technology and adopted electronic retailsupplier

communications

systems.

Further,

it

even

implemented automatic replenishment and stock control

system.
Acquisition
56 | P a g e

Tescos

prime

strategy

of

organic

growth

has

been

Acquisition. For eg: To further increase its market share in UK,

it acquired 862 T&S convenience stores. It also purchased 13
HIT stores in Poland.
Joint development
Tesco has always adopted the strategy of diversification and
offering its customers vide range of products including nonfood items. Hence, it has entered into various joint ventures
to fulfill its commitment of offering different products, for eg.,
to offer Financial products and Personal Finance it entered
into joint venture with Royal Bank of Scotland, to offer
Petroleum products it entered into joint venture with Esso
and BP at its various Express and other large format stores.

5.1.2 Sainsbury's
Comparing with Tesco, Sainsbury's strategy in the three aspects
can be list as follow:
Business-Level Strategy
Sainsbury's is one of the oldest retailers in food sector in the UK.
Compared to Tesco, which at present is the largest food retailer in
UK and is known to offer customers very cheap prices, Sainsburys
main focus has always been on providing high quality products. To
demonstrate this, Sainsbury gives details on the process of food
production and how it chooses the raw materials to process the
food. However, due to entrants of various competitors, Sainsbury
has started concentrating on price of the product along with
quality.
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Corporate-Level and international Strategy

Just like its major competitor Tesco, Sainsbury has adopted the
strategy of business diversification. On similar lines of Tesco,
Sainsbury has also increased the number of non-food lines along
with regular food products and thereby offer more variety to its
customers. Currently around 80stores are providing dedicated nonfood spaces and around 2500(approx.) have started providing new
non-food lines. Few stores are also offering clothes and childrens
products. Further, the management has decided to open specialist
cook shops in main outlets and take advantage of Sainsburys
reputation for giving fresh products and thereby capture more up
market lines.
Sainsbury had opened stores in other countries such as USA and
Egypt, however due to lack of proper market research and
implementation of proper strategies, it failed to establish itself.
Since then it has not achieved any success in international markets
and even had to wind up the stores it opened in USA and Egypt.

Strategy Development
Internal development
Sainsbury opted to give proper training to its employees.
Hence, it introduced a two-day training course. Around 1000
employees including store managers and central team
members including the senior management and Board
attended this training course. Further, every salesman was
giving special training on customer service and thereby aim
to improve the service quality.

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Acquisition
Sainsbury took over and purchased 14 stores from Morrison
including 13 Safeway branded stores and one Morrison stores
which was primarily located in the Midlands and north
England. This strategy would help Sainsbury to expand its
market share.

Joint development
Sainsbury opened stores in USA and Egypt, however due the
lack of market research it had to shut down its stores. Hence,
it decided to tie-up with other companies like Shaw
supermarket and then enter the US market

5.2 Evaluation and Recommendations

We have already seen the SWOT analysis of both Tesco and
Sainsbury in the chapter of competitive analysis. After studying
these strategies it is now important to analyze how this SWOT
Analysis can be used to frame various strategies.
Sainsbury's strategy has been greatly changed during the last ten
years, and it has obtained some improvement. For example,
Sainsbury's has raised its share from 15.6% to 15.9% till June
2005. However, there are deficiencies on its strategies.
Internal

Strengths

Strong brand equity

Innovative financial
services business

Weaknesses

Decrease in
profitability
Lack of exposure in

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External

Opportunities

Increasing product
line which can be
added
Further, expansion of
stores
Positive trend in the
pet care market

international markets
Supply chain
disruptions

Threats

Strong competition in
prices
Oversight in govt.
regulations
Restaurant business
booming in UK.

To understand Sainsburys business environment as well as its

strategic capability we can do a SWOT Analysis. The SWOT
Analysis matrix will help by giving an indepth understanding which
will further help to develop effective strategies.

SO (Strength-Weaknesses) Strategic Options

It involves listing down of options that make use of the
strengths so as to take advantage of the opportunities.
WO Strategic options
It involves listing down of options that take advantage of
opportunities by overcoming weakness
ST Strategic options
It involves listing down options that make use strengths so
that threats can be removed.
WT Strategic options
It involves listing down options that can help to minimize
weaknesses and avoid threats.

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According to the analysis of Sainsbury's strategy, some

recommendations are raised as follows:
Sainsbury is a very popular and well established brand in UK.
Due to sheer size of Sainsbury and strong store network, it is
recommended that Sainsbury should further expand the
number of stores and thereby further increase its market
share.
Sainsbury can increase its profitability by exploring more into
pet care market as there is a positive and favorable trend in
pet care market.
Over the period of time, the competition for Sainsbury has
grown from various stores such as ASDA, Tesco etc.. The
competitors such as Tesco are offering products at very low
price resulting in Tesco becoming the largest supermarket in
UK. Hence, it is highly recommended that Sainsbury also
offers more competitive prices along with quality. Sainsbury
can make use of its effective operations and cut down on
costs and thereby offer most competitive prices to its
customers.
Sainsbury mainly focuses on food items and it appeals more
to food lover. However, in the recent times the restaurant
business has flourished and customers love eating out at
restaurants. Hence, Sainsbury needs a serious relook at its
strategies. It should offer more product categories and try to
avert this threat.
[Supermarket

retailing

Tesco

vs

Sainsburys

(online)

www.docshare.com (Accessed on 25th August, 2011)]

Chapter 6: Conclusion

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The UK Food Retail Industry faces immense high competition and

low-price strategies. Recently, all big food retail companies such as
Tesco, ASDA, Sainsbury and Morrison realized this and are
focussing on offering its customers value for money products,
cheap and exciting offers and even add products other than nonfood items also to cater to most needs of their customers.
The UK food retail industrys total revenue was approximately
$186.1 billion in 2009, with a compound annual growth rate
(CAGR) of 4.2% for the period of year 2005-2009. It is expected to
slow down, with projected CAGR of approx 3.4% for the five-year
time duration ranging from 2009-2014. This will drive the industry
to a value of $219.4 billion by the end of 2014.. The above analysis
shows

the

competitive

and

strategic

analysis

of

top

two

supermarkets namely Tesco and Sainsbury for which we can

conclude the following.
Within the highly turbulent retail segment, where companies are
required to pursue both cost leadership and differentiation
strategies, Tesco still maintains to hold its leadership position.
Tesco has been able make the strategic use of information
technology and also it has been able to attain both by using lean
and agile supply chain management. Thus we can say that Tescos
core competencies have been seen to be allied with the business
environment and thereby showing a positive future outlook for the
company.
Using the competitive analysis tools, we can say that Sainsbury is
an iconic food brand, which is well loved by its consumers. It
suffered a lot during its initial phases but since the year 2004 it
has been able to improve tremendously its image, and importantly
62 | P a g e

its profits. However, as highlighted in PESTEL analysis it is not

protected to many outside risks like recession and rising material
costs.
Even though it has shown good performance and steady growth it
is very vital for Sainsbury's to go one step ahead by challenging
Tesco, as identified in the Porters 5 forces analysis. Sainsbury can
do it either by thinking of international expansion or on price. Not
only this will do, it should be done in combination with its
increasing property portfolio and alternate businesses so that it
can continue the strong growth path and can come over its threats
(SWOT) in its external environment.

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id=1&fid=1&sid=7&tid=26&cid=94
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action=vthread&forum=1&topic=5
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