Business Environment of Sainsbury's

Question

What are the effects of the business environment on Sainsbury's ?

Answer

Sainsbury's is recognised as one of the UK's largest supermarket retailers, occasionally referred to as one of the ‘big four’ of Tesco, Sainsbury's, Asda, and Morrisons (Clarke et al., 2012). Collectively these four UK retailers hold approximately 70% of the UK grocery retail market, with Sainsbury's themselves holding some 16% (Kantor, 2016). The UK grocery retail market is fiercely competitive (Free, 2008), and current economic, social and political circumstances are serving to increase levels of competition and particularly price sensitivity amongst consumers. Since the recession of 2007/2008, Clarke et al., (2012) report that grocery consumers have become increasingly price sensitive, leading firms such as Sainsbury's to focus particularly on cost reduction and value for money in their product ranges. Their traditional customer base is middle-income families with moderate levels of income (Hackney et al., 2006), and now Sainsbury’s face threat from both discount retailers, such as Aldi and Lidl, who have seen exponential growth in the face of changing consumer habits, as well as their traditional rivals such as Tesco and Asda and who have also acted to reduce their prices. Now in the wake of ‘Brexit’, Sainsbury's face additional external threat from the rising costs of importing food and raw ingredient costs as the value of the pound weakens (Rodionova, 2016). This is likely to have quite considerable implications for consumer purchasing, as consumers trade down to lower value brands. Furthermore, major suppliers of many grocery items are likely to pass on their own price rises, meaning that Sainsbury's will have to work hard to either absorb costs or decide whether to pass price rises on to consumers. The level of competition and narrow profit margins in the grocery sector mean that times look difficult for UK grocery retailers such as Sainsbury in the immediate future.

References

Clarke, I., Kirkup, M., and Oppewal, H., (2012) Consumer satisfaction with local retail diversity in the UK: effects of supermarket access, brand variety, and social deprivation. Environment and Planning A, 44(8), 1896-1911. Free, C., (2008) Walking the talk? Supply chain accounting and trust among UK supermarkets and suppliers. Accounting, Organizations and Society, 33(6), 629-662. Hackney, R., Grant, K., and Birtwistle, G., (2006) The UK grocery business: towards a sustainable model for virtual markets. International Journal of Retail & Distribution Management, 34(4/5), 354-368. Kantor (2016) UK Grocery Market Share [online] available at http://www.kantarworldpanel.com/en/grocery-market-share/great-britain Retrieved 3rd Nov 2016. Rodionova, Z., (22nd Sep 2016) Brexit: Supermarkets set to shrink packets and use cheaper ingredients due to pound weakness, says Bank of England [online] available at http://www.independent.co.uk/news/business/news/brexit-supermarkets-set-to-shrink-packets-and-use-cheaper-ingredients-due-to-pound-weakness-says-a7322731.html Retrieved 3rd Nov 2016.