UK Grocery Chain Segment: Sainsbury vs Tesco

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Introduction

Both Sainsbury and Tesco successfully hurdle the challenges of the grocery market segment. The research focuses on Sainsbury’s grocery business. Tesco generated the highest revenue amount in the United Kingdom grocery business. The research focuses on the revenue-generating activities of both Sainsbury and Tesco within the confines of the local grocery market segment. Sainsbury and Tesco are profitable grocery chain stores (McDonald, 2007).

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J. Sainsbury

Financial History

The United Kingdom grocery chain market segment focuses on serving the basic needs of the local household clients. The three major grocery chain players are Tesco Sainsbury and ASDA. Sainsbury’s strength is the successful implementation of its innovative marketing strategies. The laissez-faire economic environment influences the grocery market segment. Each grocery competitor influences the other competitors’ revenues and selling prices. To survive in the United Kingdom grocery market segment, each grocery must offer high-quality products at reasonable prices (Graiser, & Scott 2004).

Sainsbury’s is currently behind Tesco in the United Kingdom grocery chain market segment. The company’s main office is located in Holborn City, London. Sainsbury was established by John James Sainsbury and his wife Mary Ann Staples in London, England in 1920. The grocery store grew rapidly in terms of products displays and store outlets within the United Kingdom. However, the Tesco grocery chain of the store had overtaken Sainsbury to become the market leader in 1995.

Further, Kotler (1994) emphasigroceriest grocery focused on selling basic goods and services. The founder of the Sainsbury chain of stores still owns 15 percent of the company’s total outstanding shares. The largest portion (25 percent) of Sainsbury’s outstanding shares of stocks belongs to the Qatari royal family. Sainsbury opened its first grocery store to initially cater to the discriminating needs of the community.

Corporate Financial Strategy

Mayo (2007) emphasized Sainsbury’s corporate strategy includes its marketing strategies; the strategies include product, price, place, and promotion factors. In terms of the Sainsbury corporate financial strategies currently being implemented, the company sells high-quality products at reasonable prices. The company advertises its products and sets up several branches to reach the company’s current and future grocery clients. Palmer (2004) insists the company continues to financially grow despite the presence of the current global recession. The company’s present strategy focuses on product and service diversification to increase its net profits and dividend distribution.

Further, Sainsbury continues to maintain a profitable grocery chain image by implementing customer-based programs and offering the best quality products and services to the United Kingdom household customers. Sainsbury’s branding, expansion, and customer delivery activities precipitate the company’s leadership in terms of net profits and revenues in the United Kingdom grocery market chain (Helfert, 2001).

Furthermore, Sainsbury continues to creatively enhance its popular grocery image by maximizing scarce assets to fulfill the company’s goals, vision, mission, and objectives. The company incorporates innovation, challenge, and passion in its marketing activities. The employees attend regular training to hone their marketing skills.

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TESCO

Financial Statement Analysis I

The financial analysis focuses on comparing the overall financial situation of Tesco’s financial performance using ratio analysis (Anon, 2010). According to the 2009 annual financial statements, the Tesco Company is a very profitable grocery chain store organization 2009.

The profitability picture of Tesco gets bigger using the company’s return on assets financial statement ratio. In terms of the return on assets (ROA) financial ratio, Tesco received a high 5% financial statement in 2009. The return on assets picture shows the company’s net income for 2009 is 5% of the company’s total assets. The same effect is replicated by the return on equity (ROE) financial statement ratio where the financial ratio shows the company’s net income is 17% of the company’s average stockholders’ equity.

Financial Statement Analysis II

Also using return on capital employed (ROCE), the company showed high positive ratios of 11% and 14% during the 2009 and 2008 accounting periods. Both ratios clearly show that the Tesco earnings before interests and taxes represent 11 percent of the company’s net assets. The 2009 return on capital employed shows that the company may have to resort to borrowings if the ratio will continue to decline to a negative ROCE ratio (Anon, 2011).

The current asset ratios for both 2009 and 2008 are 0.76 and 0.58 respectively (Meigs, Meigs, and Meigs, 1995). The 2009 Tesco current ratio indicates the company’s current assets represent 76 percent of the company’s 2009 current liabilities. The 2009 ratio shows a better picture of the company when compared to the 2008 current ratio result (Maguire, 2007).

Sainsbury Financial Ratios

In terms of Sainsbury’s gross profit ratio, Table 5 clearly shows that the gross profit ratio of Sainsbury for the year 2010 is five percent. Maguire (2007) emphasized the answer is arrived at by dividing the 2010 gross profit of 1,082,000 by the 19,964,000 amount for the year 2010. Consequently, the 2010 gross profit ratio is five percent of the revenue amounting to only 19,964,000

In terms of Sainsbury’s 2009 financial statement ratio, Table 5 shows the gross profit ratio of Sainsbury for the year 2009 is five percent (Bernstein, 1993). This is arrived at by dividing the 2009 gross profit of £1,036,000 by the £18,911,000 revenue generated during 2009. Consequently, the 2009 gross profit ratio is five percent of the revenue amounting to only £18,911,000. The gross profit ratio shows the relationship between the gross profit and the revenues for the same accounting period.

In terms of Sainsbury’s 2010 net profit ratio, the financial statement ratio shows the company’s net profit is three percent of the company’s revenues figure. The resulting net profit financial ratio is arrived at by dividing the company’s net profits by the company’s net revenues.

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In terms of Sainsbury’s 2009 net profit ratio, the financial statement ratio shows the company’s 2009 net profit is two percent of the company’s 2009 revenues. The ratio is arrived at by dividing the company’s net profits by the company’s net revenues. The ratio indicates the relationship of net income to the company’s revenues.

In terms of Sainsbury’s 2010 return on assets ratio, Table 7 clearly shows the return on assets ratio of Sainsbury for 2010 is five percent. This is arrived at by dividing the 2010 net profit of £585,000 by the 2010 total assets amount to £10,855,000. Consequently, the 2010 return on assets percentage is five percent of the total assets amounting to £10,855,000.

In terms of Sainsbury’s 2009 return on assets ratio, Table 7 clearly shows that the return on assets amount of Sainsbury for the year 2009 is lower at three percent. The percentage is arrived at by dividing the 2009 net profit of £585,000 by the 2009 total assets amounting to £10,033, 000. Consequently, the 2009 return on assets is three percent of the total assets amounting to £10,855,000. The return on assets formula is used to determine if management uses scarce fund resources wisely.

In terms of Sainsbury’s 2010 return on equity ratio, Table 8 clearly shows that the return on equity amount of Sainsbury for the year 2010 is twelve percent. This is arrived at by dividing the 2010 net profit of £585,000 by the 2010 total equity amount to £4,966, 000. Consequently, the 2010 return on equity is seven percent of the total equity amounting to £4,966,000.

In terms of Sainsbury’s 2009 return on equity ratio, Table 8 clearly shows that the return on equity amount of Sainsbury for the year 2009 is seven percent. This is arrived at by dividing the 2009 net profit of 289,000 by 2009. The total equity amount is £4, 3766,000. Consequently, the 2010 return on equity is seven percent of the total equity amounting to £4,376,000. The return on equity ratio is used by management to determine how much the stockholders earn within a specified period.

In terms of Sainsbury’s 2010 return on capital employed (ROCE) ratio, Table 9 clearly shows that the return on capital employed amount of Sainsbury for the year 2010 is twelve percent. This is arrived at by dividing the 2010 net profit of £585,000 by the 2010 difference between the current year’s total assets and current liabilities.

In terms of Sainsbury’s 2009 Return on Equity ratio, Table 9 clearly shows that the return on capital employed for the year 2009 is four percent. This is arrived at by dividing the 2009 net profit of £289,000 by the 2009 difference between total assets and current liabilities amounting to 7,114,000. The return on equity ratio is used by management to determine how much the stockholders earn within a specified period.

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In terms of Sainsbury’s 2010 quick ratio, Table 10 clearly shows that the quick ratio amount of Sainsbury for the year 2010 is 75 percent. This is arrived at by dividing the 2010 difference between current assets and inventory end amounting to £2,091,000 by the current year’s current liabilities amounting to £2,793, 000

In terms of Sainsbury’s 2009 return on equity ratio, Table 10 clearly shows that the quick ratio employed for the year 2009 is 76 percent. This is arrived at by dividing the difference between the current assets (£2,091,000) and inventory (£2,793,000) by the current liabilities amount of £2,919,000. The quick ratio is used by management to determine the company’s ability to pay its current liabilities out of current assets.

In terms of Sainsbury’s current ratio, Table 11 clearly shows that the current ratio amount of Sainsbury for the year 2010 is 64 percent. This is arrived at by dividing the 2010 difference between current assets end amounting to £1,797,000 and the ending inventory amount by the current year’s current liabilities amounting to £2,793, 000. The resulting computation shows the company’s ability to pay its currently maturing debt from current liabilities.

In terms of Sainsbury’s 2009 return on equity ratio, Table 11 clearly shows that the company’s current ratio employed for the year 2009 is 56 percent. This is arrived at by dividing the difference between the £1,570,000 current assets amount by the current liabilities amount of £2,919,000. The current ratio is used by management to determine the company’s ability to pay its current liabilities out of current assets.

In terms of Sainsbury’s 2010 gearing ratio, Table 12 clearly shows the gearing ratio of Sainsbury for the year 2010 is 1.19 times. This is arrived at by dividing the 2010 total debt amounting to £5,889,000 by the current year’s total equity amounting to £4,996,000. The resulting computation shows the company’ has the strong ability to pay its currently maturing debt from current liabilities.

In terms of Sainsbury’s 2009 gearing ratio, Table 12 clearly shows that the gearing ratio is 1.29 during the 2009 accounting period. This is arrived at by dividing the total debt amount by the total equity amount. The total debt amount is 5,675. The total equity amount is £2,919,000.

Comparing Sainsbury and Tesco

Table 13 shows Sainsbury generated a gross profit ratio of five percent during the year 2009. On the other hand, Tesco generated a gross profit ratio of twelve percent for the same year. Comparing the two companies, Tesco’s financial performance is better than Sainsbury’s financial performance in the year 2009.

In terms of net profit comparison, the Sainsbury net profit ratio is two percent during the year 2009. On the other hand, Tesco generated a net profit ratio of four percent during the same year. Comparing the two companies, Tesco’s financial performance is better than Sainsbury’s financial performance in the year 2009.

In terms of return on assets, Sainsbury generated a three percent return on assets percentage for the year 2009. On the other hand, Tesco generated a five percent return on assets percentage. Comparing the two companies, Tesco’s financial performance is better than Sainsbury’s financial performance in the year 2009.

In terms of return on equity, Sainsbury generated a seven percent return on equity result. On the other hand, the Tesco Company generated a 17 percent return on equity result. Comparing the two companies, Tesco’s financial performance is better than Sainsbury’s financial performance in the year 2009.

In terms of return on capital employed computation, Sainsbury generated a four percent return on capital employed or ROCE. On the other hand, Tesco generated a return on capital employed of 11 percent. Comparing the two companies, Tesco’s financial performance is better than Sainsbury’s financial performance in the year 2009.

In terms of Sainsbury’s internal business processes, Feldman (2007) theorized the income statement shows strong evidence the company can maximize its scarce resources to increase the company’s current revenues. Sainsbury’s strategic use of its opportunities and strengths to increase the company’s current revenue is a profitable marketing plan. The company can attain its objective to improve its internal business processes by surpassing its revenue-generating measurements (Stickney, 2009). The company can reach its target and initiative areas by surpassing its internal process benchmarks (Smith 2007).

In terms of Sainsbury’s financial learning and growth in the United Kingdom grocery business, Porter (1980) reiterated the Sainsbury financial statements prove the company can achieve its vision to retain its current second-place spot in the United Kingdom grocery market segment. The company’s ability to change and improve its current marketing and production strategies to innovatively retain its hold on a majority of the grocery market segment increases the company’s current revenues (DuBrin, 2008). The company continues to attain its objective, target, and initiative through strategic innovations; the innovation ensures a continuing share of the grocery market segment (Niven, 2006).

In terms of the Sainsbury customers, the company’s income statement indicates that the company can achieve its vision of offering its current and prospective clients high-quality products at reasonable prices. The company continues to reach its objective of introducing high-quality products to its valued clients (Mun, 2006). In terms of measurement, target, and initiative, the company’s positive financial ratios indicate the company satisfies the company’s clients (Weygandt 2009).

In terms of Sainsbury’s competitive advantage, Anon (2004) emphasized in its Market Watch issue Sainsbury realizes the need to improve its product and service quality to regain its former grocery chain leadership status from the current leader in the United Kingdom grocery chain, Tesco. Sainsbury’s current marketing strategy ensures the company’s continued second-place rank in the grocery chain market segment. At this level, Sainsbury’s product differentiation strategy is an effective revenue-increasing alternative.

Conclusion

The grocery chain market segment in the United Kingdom is a saturated market. Tesco garnered the most number revenue compared to the other competitors. Sainsbury ranks second in the grocery chain market segment. Sainsbury profitably ventured into selling grocery products. Sainsbury is eagerly standing behind Tesco in terms of revenue amount. Sainsbury helps the community by supplying quality products at affordable prices. The Sainsbury financial statement analysis clearly shows Sainsbury continues to reap profits by selling its high-quality grocery products in many strategic United Kingdom locations.

The Tesco financial statements indicate some members of society prefer to buy Tesco products. Similarly, The Sainsbury financial statements indicate some members of society prefer to buy Sainsbury products. Sainsbury focuses on the enhancement of its price, product, place, and promotion aspects of marketing to increase current revenues. Indeed, both Sainsbury and Tesco successfully overcome the challenges of the grocery market segment.

Recommendation

In terms of balanced scorecards’ financial perspective, Sainsbury must continue its current strategic direction of generating net profits by filling the clients’ grocery needs at affordable prices over the next ten years. The company’s balanced scorecard indicates the company continues to generate net profits for the 2009 and 2010 accounting periods from satisfied clients. The company’s current financial success must be continued by offering high-quality products at the same affordable Sainsbury shelf prices.

In terms of the balanced scorecard’s customer aspect, Sainsbury must continue its current strategic direction of advertising the company’s client-focused image over the next ten years. The advertisements will vividly show the many benefits of patronizing Sainsbury products and services. The 2009 and 2010 Sainsbury income statements’ net income data show Sainsbury consistently generates profits. The profits indicate Sainsbury sold more than enough products to cover its daily store operating expenses. The income statements’ profitable sales figures for 2009 and 2010 precipitated from the eagerness of Sainsbury’s current and prospective clients to spend most of their purchasing activities within the nearest Tesco retail outlets.

According to Yilmaz (2009), Sainsbury’s balanced scorecard’s internal business process aspect focuses on Sainsbury’s continuing management of its current strategic direction of selling high-quality products and services over the next ten years. The Sainsbury Company’s internal business process balanced scorecard status indicates the company has a passing grade; the company offers high-quality grocery and other related products at acceptable prices, Consequently, Sainsbury is patronized by many grocery clients.

In terms of the balanced scorecard’s learning and growth aspect, the Sainsbury grocery chain of stores must conduct store surveys as a new basis for instituting client-based marketing and management strategies over the next ten years. The Sainsbury Company’s balanced scorecard grade under the learning and growth aspect indicates the company was able to achieve its vision and mission to sustain its current second place in the grocery market segment. The surveys will serve as a starting point to enhance the Sainsbury currently popular brand’s image, product quality, and service quality.

References

Anon, (2004) Company Spotlight: Tesco, Datamonitor. Web.

Anon, (2011) Sainsbury Financial Statement. Web.

Bernstein, J. (1993). Financial Statement Analysis. Sydney: IRWIN.

Clarke I., Bennison D. and Guy C. (1994). The Dynamics of UK Grocery Retailing at the Local Scale. International Journal of Retail & Distribution Management, 22(6).

Dornbusch, R. and Fischer, S. (1990). Macroeconomics. New York: McGraw-Hill Publishing Co.

Dubrin, A. (2008) Essentials of Management. London, Cengage Press.

Feldman, M. (2007) Crash Course in Accounting and Financial Analysis. London, J. Wiley& Sons.

Graiser A. and Scott T. (2004). Understanding the Dynamics of the Supermarket Sector, The Secured Lender. Vol. 60 Issue 6.

Hammett, S. and McMeikan, K. (1994). Tesco – Competitive Management Development. Executive Development. Vol. 7 Issue 6.

Helfert, E. (2001) Financial Analysis: Tools and techniques: a guide for managers. New York: McGraw-Hill Professional.

Kotler, P. (1994) Marketing Management. Analysis Planning. Implementation and Control. London, Prentice-Hall.

Maguire, M. (2007) Financial Statement Analysis. London, Grin Press.

Mayo, H. (2007) Investments: An Introduction. London, Cengage Press.

McDonald, M. (2007) Marketing Plans: How to Prepare them, How to Use Them. London, Butterworth –Heinemann Press.

Meigs, R., Meigs, W., & Meigs, M. (1995). Financial Accounting. New York, McGraw-Hill.

Mun, J. (2005) Real Options Analysis: Tools and Techniques for Valuing Strategic Investments and Decisions. London, J. Wiley & Sons.

Niven, P. (2006) Balanced Scorecard Step by Step: Maximizing Performance and Maintaining Results. New York, J Wiley & Sons Press.

Palmer, M. (2004). International retail restructuring and divestment: the experience of Tesco. Journal of Marketing Management, November, Vol. 20 Issue 9/10.

Porter, M. (1980) Competitive Strategy. London, Free Press.

Smith, R. (2007) Business Process Management and the Balanced Scorecard. New York, N.Y: J. Wiley & Sons.

Stickney, C. (2009) Financial Accounting. London, Cengage Press.

Anon (2010) Tesco Annual Report in 2009. Web.

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Yilmaz, K. (2009) The Balanced Scorecard. London, Grin Press.

Appendix

Financial Statement Analysis

Table 1.

TESCO 2009
Net Profit = Net Profit = 4214 = 0.04
Revenues 54327
Return on Assets = Net Income = 2166 = 0.05
Total Assets 46053
Return on Equity = Net Income = 2166 = 0.17
Total Equity 28013

Table 2.

TESCO 2009
ROCE Net income 2166 0.11
Total Assets – current liabilities 28013
Quick Ratio = Current Assets – Inventory = 11376 = 0.61
Current Liabilities 19901
Current Ratio = Current Assets = 14045 = 0.76
Current Liabilities 19901
Gearing = Total Debt = 33658 = 2.54
Total Equity 12995

Table 3.

TESCO 2008
Net Profit = Gross Profit = 3630 0.08
Revenues 47398
Return on Assets = Net Income = 2130 0.07
Total Assets 30164
Return on Equity = Net Income = 2130 0.18
Total Equity 11902

Table 4.

TESCO 2008
ROCE Net income 2130 0.14
Total Assets – current liabilities 19901
Quick Ratio = Current Assets – Inventory = 3870 0.35
Current Liabilities 10263
Current Ratio = Current Assets = 6300 0.58
Current Liabilities 10263
Gearing = Total Debt = 18262
Total Equity 11902 1.53

J Sainsbury

Table 5.

2010 2009
Gross Profit Ratio = Gross Profit = 1,082,000 = 1,036,000
Revenues 19,964,000 18,911,000
= 0.05 = 0.05

Table 6.

2010 2009
Net Profit Ratio = Net Income = 585,000 = 289,000
Revenues 19,964,000 18,911,000
= 0.03 = 0.02

Table 7.

2010 2009
Return on Assets = Net Income = 585,000 = 289,000
Total Assets 10,855,000 10,033,000
= 0.05 = 0.03

Table 8.

2010 2009
Return on Equity = Net Income = 585,000 = 289,000
Total Equity 4,966,000 4,376,000
= 0.12 = 0.07

Table 9.

2010 2009
Return on Capital employed = Net Income = 585,000 = 289,000
Total Assets – Current Liabilities 4,966,000 7,114,000
= 0.12 = 0.04

Table 10.

2010 2009
Quick Ratio = Current Assets – Inventory = 2,091,000 = 2,230,000
Current Liabilities 2,793,000 2,919,000
= 0.75 = 0.76

Table 11.

2010 2009
Current Ratio = Current Assets = 1,797,000 = 1,570,000
Current Liabilities 2,793,000 2,919,000
= 0.64 = 0.54

Table 12.

2010 2009
Gearing Ratio = Total Debt = 5,889,000 = 5,657,000
Total Equity 4,966,000 4,376,000
= 1.19 = 1.29

Table 13.

Sainsbury Tesco
2009 2009
Gross Profit Ratio = Gross Profit = 1,036,000 = 36,737
Revenues 18,911,000 320,111
= 0.05 = 0.12

Appendix I- Tesco’s Summary of Financial Data with Resulting Ratios

Tesco's Summary of Financial Data with Resulting Ratios

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