J Sainsbury: An Economic Analysis

Introduction

J. Sainsbury was the foremost name in food chain stores, with a 140-year-old history (started 1869) in customer servicing and providing quality products at minimum fair prices. Its practices of good customer service at a lower price have been at the core of its success story for many years of its chequered history and have underpinned its supremacy in the UK food sector.

We will write a custom J Sainsbury: An Economic Analysis specifically for you
for only $14.00 $11,90/page
308 certified writers online
Learn More

Besides, it has also made forays into banking, insurance, and core financial areas. However, the present economies of JS food stores have been relegated in recent years, partly due to strong competition offered by Tesco and Asda. and certain strategic top management changes that have negatively affected this food chain.

Background

From a family-run business, Sainsbury has grown into an economic supermarket chain with public stakes. Started around 1869 by its early family owners, the stores grew from strength to strength due to their unflinching commitment to quality products and are passionate for customer servicing. By the middle of the twentieth century, it had established itself as the numero uno of the retail food production industry in the UK. Expanding exponentially and adding other services, particularly banking and financial services to its services.

However, during the year 1992, there were strategic top management changes at the Board of Directors level and the long-serving Chief Executive Officer superannuated and was succeeded by another close relative, who took over the reins of management as Chairman and CEO. David Sainsbury, as the new incumbent was named, could not provide the kind of strategic and competitive economic thrusts that were needed to promote this food supermarket, as a result of which its competitor, Tesco superseded it to the No.1 leadership spot in supermarket retail business.

The economic models pursued under the new management were in terms of opening up stores in smaller towns and semi-rural areas, as a result of which village buyers need not have to visit big towns for their daily needs. Ideally, this was in tune with strategic marketing, but the economics of refurbishment and standardization to make it at par with the city and big town stores was indeed demanding. The economic fortunes of JS started falling by the beginning of the 21st Century, perhaps due to inappropriate economic decisions.

Problems besetting JS

It is now necessary to consider three main issues that have beset JS during the past. They may be seen as follows:

  • Problem 1 – inability to develop a robust market for loyalty cards – short term problem
  • Problem 2 – Their prices are higher than that of its competitors – medium-term problem
  • Problem 3 – Strategic inability to move into non-food retail markets- long-term problem.

It is now necessary to consider the problems one by one.

Get your
100% original paper on any topic done
in as little as 3 hours
Learn More

Inability to develop a robust market for nectar loyalty cards

When compared to the competitors of JS, it is observed that JS has not been able to make major headways in marketing strategies through use of Nectar loyalty cards. As a matter of fact, the management had rejected the scheme of loyalty cards earlier on, but were constrained to bring it back, due to the fact that rival businesses were able to derive increased sales through loyalty card schemes. The main advantages of loyalty card stem from the fact that access to customer data base is available, interaction with customers could be continued, and benefits accruing to the customers in terms of discounts, gift schemes, promotions, etc could indirectly also help JS.

But JS found the loyalty card schemes economically unviable since it, in effect reduced prices and profits. Perhaps the quantum of larger profits through large volume sales was not apparent to them. The need for maximizing customer utility was not a part of JS’s business strategy which may have accounted for market share losses in latter years. It is proven economics that the risk of “food retailers losing minimum 40% of their new customers within 3 months could be arrested if loyalty cards were in vogue. (Loyalty program overview n.d.).

Successful loyalty cards could quantitatively assess losses and gains on customer accounts which is integral for better customer business in future.

“Without a loyalty card, one has no clue about the size of the inflow and outflow of new customers,” What does this mean for the bottom line? Learning to play the loyalty card game better can help companies reap big cash rewards.”(Loyalty program overview n.d.).

JS’s prices are higher than that of its competitors – medium term problem

While most customers are satisfied about the quality and servicing in JS stores, some of them feel that the prices are higher than that of its competitors. As one client succinctly put it, “Sainsbury’s has many good points, but it is still quite an expensive place to shop. I find I get much better value for money when I shop at either Asda or Morrisons, because prices are generally lower and the offers are better.” (Review of Sainsburys (shop) 2009).

Because of such issues, often JS had to take recourse to pricing cutting, which, in the medium term, does not augur well, since most customers always link value with prices, and price elasticity and price sensitivity are ideal requirements in the retail business. Retailers need to strike a harmonious balance between the demand for products and the price they are willing to pay. In the event the prices are too high or too low, customers would vacillate to make purchases, thinking in economic terms of value for money spent. It is widely believed that, nowadays, marketing think tank at JS do not know which to establish supremacy on – whether quality, or value, or both? Although since its inception quality has been the main stressed factor, over the years, it has been felt that value also matters, especially in a competitive market, with rivals like Tesco and Asda close on the heels of JS., at least value wise. Pricing assumes importance when other economic considerations like service, décor of shops, quality and time of delivery all are more or less equal among sellers. In order to remain first among equals, it is necessary for JS to become more market responsive and adopt a pro-active stance, especially with regard to competitive elements of business.

Strategic inability to move into non-food retail markets- long term problem

The food industry is plagued with limited margins, high inventory carrying costs and incidence of spoilages and damages to perishable food stuffs. Moreover, competitive elements could make it more difficult for leaders to remain at the top for long. This is what had precisely happened to JS, in that in changed economic scenarios, they floundered and perhaps lost their sense of perceptive directions and overall control over their leadership position. This provided their rivals, Tesco and Asda to gain market advantages at the cost of JS. If JS had made strategic moves into the more profitable and high margin non-food sectors like consumer durables, household goods, etc, maybe their position would have enhanced over time. “Profit margins on non-food items are higher than on food products, and the non-food offering is a method of differentiating one chain from another in a way that is not always possible with food products. “ (Non- food sales in supermarkets market assessment 2008).

We will write a custom
J Sainsbury: An Economic Analysis
specifically for you!
Get your first paper with 15% OFF
Learn More

Moreover, striking bargains with suppliers and vendors are more productive in non food industries, since large price benefits could be passed on to the customers directly, with little intermediation. Moreover aspects like shelf life of food products, FDA norms and requirements and storage, refrigeration and inventory costs do not really apply to non- food. Moreover, strategies of non food available but could attract different varieties of customers who may be inclined to shop for food stuff also, which is additional bargains for JS. However, the legal and ethical values available to food products, and longer gestation period (time between storing of goods and its eventual sale), outlay costs and other characteristic considerations have hindered JS from going in for sale of non food commodities.

It is now necessary to consider the solutions to the various issues plaguing the third largest retail food chain in UK.

Short term

It is necessary to introduce different varieties of loyalty cards in different locations to build stronger bonds with customers and gain sales through better understanding and affinity with customer and clientele. When volume off takes are considered, it would be necessary to make concessions and trade offs to gain new customer and more importantly, to retain existing customers. While taking decision, factors like consumers’ wants, their habits, their purchasing power, supply and demand, market trend, pricing policies of competitors…etc are considered. Most of this information can be obtained from the customer database, through the scanned card, which accounts for its immense popularity and usage.

Medium Term

Pricing is a major issue at JS. Therefore, instead of cutting prices indiscriminately, there needs to be offers and special discount fairs on selected dates in which prices would be lowered. Just as many shops hike prices of commodities on holidays etc, schemes could be introduced that reduce prices provided volume off takes is made. The discounts need to be only total billing of customers and not only products categories alone, since this would encourage dual pricing which may not find favour with many customers.

In economic terms, price is the amount which a buyer is willing to pay for use of goods and services; as mentioned earlier it needs to strike a harmonious balance between utility (consumer surplus) and price ( cost plus margin for sellers’ efforts.

Thus this balance needs to be struck in order to sustain commodities buying and selling in the marketplace.

Solution 3

Long Term- non food items need to be stocked in JS’s stores in order to boost sales and attract all kinds of customers who may come in search of non food but may end up buying food stuff also. Again, floor space could be better utilised and better profit planning and costs evaluation could be done. In economic terms, consumer surplus could be generated through non food, may be not in the short or medium term, but definitely in the long term.

Not sure if you can write
J Sainsbury: An Economic Analysis by yourself?
We can help you
for only $14.00 $11,90/page
Learn More

Conclusion

Fundamentally, JS needs to institute directional change in its operational and marketing strategies, by concentrating on its strengths and forte rather than seek to compete with rivals, past, present or future.

By adopting a pragmatic yet customer oriented approach, laced with customer support and service orientation, it is very well possible for JS to regain its foremost No.# 1 position in UK consumer food and non food supermarket business.

References

Loyalty program overview n.d., Web.

Loyalty program overview: where do most loyalty programs go wrong n.d., Web.

Non- food sales in supermarkets market assessment 2008, Bharat Book Bureau: Your One Stop- Shop for Business Information, Web.

Review of Sainsburys (shop): my overall verdict 2009, Ciao from Bing, Web.

Check the price of your paper