INTRODUCTION FOR ANALYSIS OF SAINSBURY PLC
Sainsbury is the third largest supermarket chain in U.K. The factors that are affecting functioning of company are greatly influenced by financial performance. Many theories like Resource based view and value chain model are included should be taken into consideration while carrying out any business activity (Arnold, 2008). The impact of theories on competitive advantage of Sainsbury’s has been showcased in this report from assignment desk. Sustainability of Sainsbury to maintain its market position and market share at current economic climate of UK is also being focused. The report has also analyzed positioning of company and what corporation is doing to retain its position.
COMPANY PROFILE OF SAINSBURY’S
In 1869 Sainsbury’s was established and is now operating more than 1106 supermarkets. In addition to convenience stores and has approximately 15700 contemporaries. Business is headquartered at London. Company has a clear vision to become a most trusted retailer, where customers should love to shop. Sainsbury’s is maintaining high ethical, social, environmental standards. Company is having 144 years of heritage. Sainsbury is serving food best for health, making difference to the community and has been sourced with truthfulness etc. Chief executive of company is Justin King and chairman of company is David Tyler (J Sainsbury Plc, 2014).
FINANCIAL ANALYSIS BASED ON HISTORICAL PERFORMANCE OF SAINSBURY
Sainsbury is a leading company in retail sector. Here, financial analysis is being made on the basis of its past performance. It is a London based company. By 1996 company had began its recycling operations with Oxfam and has collected clothing items around or over nine million. With millennium 2004 Sainsbury’s has launched TU fashion range. It became major trader to stop selling caged hen eggs. By 2012 Sainsbury’s was main collaborator of the diamond jubilee celebrations (J Sainsbury plc Annual Report and Financial Statements, 2013). The company on the weekly basis was having around 18 million customers till 2009, covering the market share of around 16%. 88% of UK households were having online home based shopping service. The company was rising speedily as it had four huge supermarket chains in United Kingdom. Business was operated in more than 1000 stores including 440 amenities stores. Company has employed around 150,000 workers till 2010 (J Sainsbury plc Annual Report and Financial Statements, 2010). Sainsbury has also combined endeavor with British Land Company and Land securities group. The original proceeds were £610 million till 2010 excluding tax (J Sainsbury plc Annual Report and Financial Statements, 2009). Profitability ratios show that, they are not performing well as compared to Morrison’s, it is reducing at a greater rates. It has reached to 5.4 from 5.5 % in 2013. The liquidity ratio show that, they are have a very nominal liquidity cover over other assets. The entire turnover was generated by selling its services and products. The business consists of trading, financial services as well as asset dealing. In Fiscal year 2011 the entire revenue excluding VAT was £ 22943 million which was 7.1% more than its previous year (J Sainsbury plc Annual Report and Financial Statements, 2011). The main purpose of Sainsbury is its profitability. The productivity of any business is support for investors. When investors are satisfied the purpose of company is fulfilled.
The operating profit of company was more than its interest which has to be paid. Thus Sainsbury had covered its interest payable through operating revenue. Profit which Sainsbury has earned by interest and tax effect was £738million which was originally 10% in service earnings. From the annual report 2011 Sainsbury it was concluded the essential share earnings have increased to 93.4% then its previous year. Return on capital employment has increased to 11.1% by 2012 (J Sainsbury plc Annual Report and Financial Statements, 2012). Expansion was comparatively lower than its previous year as company has speed up outlay in space growth since 2009. Morrisons has administered profitability range in 6.6% to 6.9% This means that Sainsbury was making proper utilization of its capital. In 2011-13, the profit was 4.03-3.81%. On the contrary, Morrison’s at 5.49- 5.2% financial year 2011-13. Liquidity ratio of Morrison’s from 2011-13, profit was 4.03-3.81%. On the contrary, Morrison’s are excelling at 5.49- 5.2% in year 2011-13. As food is a necessity so customers cannot lower their quantity of food expenditure but trim their cost (McAleese, 2004). Due to this even in recession Sainsbury did not suffered from loss as they are having a stable demand. Market value of Sainsbury free hold property was £ 9.8 billion till 2010. £0.7 billion property has created its value by development and investment activity (Gupta and Malhotra, 2013). The efficiency ratios at range have been kept at a boundary of 1.84-1.85 in the year of 2011-13. Sainsbury has synchronized the total debt to equity 0.46 in the period of 3 years. The EPS has not improved in the following year for Morrison’s, it has decline at 9.4% from 11.4%.
COMPARISON OF FINANCIAL POSITION OF SAINSBURY WITH MORRISONS
Sainsbury is a leader in the market since it came into existence. Many retail players does exist which are competing with Sainsbury’s. Financial position of Company has been compared with another leading company Morrison (Passemard and Kleiner, 2006). The Sainsbury lavishness in taste and has accounted around £1 billion of its sales. Company market share has increased to 16.8 % by 2013 (Sainsbury's reports rise in sales as market share rises, 2013). Rise in market share increases its revenue. Growing market share indicates loyalty of consumers. These factors act as a competitive advantage for the company to retain itself as market leader in food retailer industry. There is a growth of 34% in non-food sales. Company is generating profit and is delivering high-quality sales. The total revenue increased percent including all taxes is 4.3% as per fiscal year 2013. Company is operating 1,106 supermarkets due to insider aspects which are affecting the sales growth. Supermarket has started manufacturing its own label brand due to success of company (Atrill, 2009). Business accounts 23 million weekly customer transactions (J Sainsbury, 2014). Operating profit has grown by 5.1% which is £829 million. Effectiveness with which fresh hard cash is invested and profit earned from the existing cash is measured through return on capital employed (Jemmeson, 2007). Sainsbury has grown its profit by increasing its capital employed. ROCE of 2013 is 11.2% which is 0.1% more than its previous year. It is considerably civilizing and persists to attain higher values by 2014. Dividend yield of a company is defined as return which company is paying to its shareholder. Generally older companies pay more dividends as compared to newer company (Glaser, 2006). This is due the stable growth and consistency in its bonus history. Company has increased its dividend per share to 16.7 P as it is growing firm and earning revenue (J Sainsbury plc Annual Report and Financial Statements, 2013).
Morrison’s is the UK’s fourth biggest selling food retailer. Company is providing best service at best price and serves fresh food (Morrison’s Annual Report and Financial Statements, 2012). It has around 500 convenience stores including 12 set-up of convenience (McAleese, 2004). Company is serving around 11million consumers and there are around 129,000 contemporaries. Annual turnover of business is of £18.1 billion. Both gross and in service revenue are determined by sales. Morrison’s did not add as much stores as Sainsbury does so the market share is comparatively low. Its market share is 11.8% only which is much less. Profit that company earns before paying all its taxes is £ 879 million. Morrison’s have higher operating profit than Sainsbury which means than company is operates at lesser cost. Price of sale is the main expense which is more for Sainsbury as compared to Morrison’s. The dividend which company is issuing for per share is 11.8 P (Morrison’s Annual report and financial statements, 2013). Morrison’s is planning to build 100 expediency portfolio stores.
RESOURCE BASED VIEW AND PORTERS VALUE CHAIN OF SAINSBURY
The effectiveness in strategic behavior of organizations is originated through resource based theory. Firm has bundle of capabilities as well as resources. Both these factors underpin competitive advantage of company (Gupta and Malhotra, 2013). The combination and coordination of resources are diagnosed by this theory. Sainsbury is also follows the resource based theory within its organization. Sainsbury is promoting Wine- direct mail service in order to compete with another leading retail company. Company started first online services offering wine. These services were expanded and invited the customers to do online shopping. Business is leading in the market as e-business is supporting the center commerce which is supermarket and home based brands.
Diverse changes have taken place and thus the e-commerce activities is been improved across the cluster. Various measures taken place by the Sainsbury like reducing its product cost, improving product quality and availability, renewing of website and so on. Devoted picking centers were the first step of Sainsbury in order to serve its customer better (Sainsbury's reports rise in sales as market share rises, 2013). This acts as a best solution to serve its customer better without compromising its offline services. Sainsbury proved to be most feasible home based shopping service without compromising the quality of products (Ma, 2008). Due to the expansion of store based picking, cost of fulfilling order as well as rationalize logistical price was reduced. Initiative for trimming cost lead to the closure of automated picking centre. As the financial condition of group was not so good so the expansion of online services was put on hold. Sainsbury online is operating more than 115 stores. They are selling a huge variety of food and grocery products (Sainsbury's submits plans for store at Malmesbury garden centre site, 2011).
Value chain is a chain of activities which Sainsbury’s is in service of specific industry to organize and convey important products and services in market (Balkau and Sonnemann, 2010). Sainsbury’s value chain analysis has been carried out in order to find out series of activity which company performs.
Inbound Logistics- Porter value chain which Sainsbury is following includes various approaches like Logistic loom. This aims to connect correct stores geographically so that right depot can reduce transport miles. Sainsbury’s have introduced double-decker Lorries so as to carry more loads. Company trained their drivers to drive it proficiently.
Operations- Main transport operation which company performs is cutting CO2 discharge. Sainsbury primary operation is to unfilled trucks, collect goods from provider and delivering it back to the stores (Collier, 2009). Secondary operation focuses on way of transportation load that has led to improvements of 1.5 per cent.
Outbound Logistics- Sainsbury’s uses various delivery options for non food good e.g. click and collect, Saturday delivery, standard delivery and so on. Being a customer of 3PL providers Sainsbury’s has established network of 20 distribution centers (Glaser, 2006). Through third party logistics provider like Asda and Tesco it is outsourcing more of its system.
Marketing and Sales- 20*20 sustainable plan was announced so as to promote its brand as well as to serve better to its employees. This plan makes the workers benefitted whenever Sainsbury’s achieve success.
Services – Sainsbury’s support long term strategy for broadening the shopping services. The firm focuses on continuous improvement and is bringing commercial advantage to logistics division (McLaney and Atrill, 2008). It is providing service like collecting Nectar points on everyday shopping.
COMPETITIVE ADVANTAGE OF SAINSBURY
Competitive advantage is a method through which Sainsbury’s is persuading its position so as to influence its customers to buy products from the same than to its rivals. This is manifesting itself on the sales side (Arnold, 2008). The competitive advantage that Sainsbury’s is including is its cost structure, the product it offers its distribution network and also supports its customer. Company is obsessive regarding putting its customer first, thus technology makes available consumer with more shopping options (Analysis: Tesco and Sainsbury's quests for success, 2014).
Nectar card, a till receipt, coupon, bank statement, shopping list had become digital and knowledge of customer has enabled a personalized digital conversation (Somsuk, 2012). A classification of competitive strategies was provided by Porter which includes generic strategy. In order to identify that general approach used by the company value chain and resource based theory was used (Gupta and Malhotra, 2013). There is range of behavior by which the firm is trying to make it distinct in the market. Sainsbury’s is selling environment friendly products. It is using 20*20 sustainable plans which include many goals like its own brand won’t make a payment to deforestation. Business is sourcing with honesty (Jemmeson, 2007). The labeling of the products has improved and is serving a better quality of product at low price. Sainsbury’s is focusing on being food with non food. Sainsbury’s Nectar loyalty card permits it to surpass peers in forward year (Analysis: Tesco and Sainsbury's quests for success, 2013). It mainly focuses on its own brand products. Company is using technology to impel its sales and is engaging its customer. Sainsbury’s has been noted to have lower priced products. Its owned label products are growing much than other branded products. Business mainly spotlight on its quality of products (Atrill, 2009). It has maintained good relationship with its manufacturers of food, this assisted company to flourish.
IT has played a key role for increase in sales. Simplification of existing systems to improve their functionality has been placed. In addition, outside advisor are employed on a greater scale so as advice the assortment and completion of more suitable systems for the future. Sainsbury’s with its brand match operation has assertion to match Tesco and Asda prices on its label products (Williamson, 2012). It has continued offering money off coupons. Company is maintaining its improvement during continuation of longer term change. Business is expecting market will remain competitive. Sainsbury’s has one of the best intensity of youngster existence in the marketplace. It has reinforced by the loyalty of its older customers. Competitive advantage is giving a Sainsbury’s boundary over its rivals. This creates an ability to generate greater value for the firm and its shareholders.
MARKET SHARE AND MARKET POSITION ARE SUSTAINABLE FOR SAINSBURY’S
Sainsbury’s market share has grown from 0.2 % to 16.8% this means company is rapidly growing. It has become a recession-beating, market share-growing, Paralympics-sponsoring success. Company is mainly focusing on values and has struck a harmony with shoppers. An expansion of market share is due to steadily increase in its sales which is excluding sales (Sigalas, 2013). The gross and operating profit is also affected by the growth in sales. The dividend is being steadily increasing for the shareholder as the market share percent has increased. The interest payable improved the return per employee (McLaney and Atrill, 2008). Due to the low price of share and high dividend yield, more investors prefer to buy share. Sainsbury’s is being a good choice among conventional investors. In addition it is best for those who are finding escalation business. Sainsbury’s seems to be tied-up when it comes to domestic growth. Loyalty and insight of Sainsbury led to have 12 million customers who are using their Nectar card regularly.
Around £213 million redemption of nectar points has been done over a year. Brand match of Sainsbury’s assures their customers that they don’t have to pay more to Tesco or Asda (J Sainsbury plc Annual Report and Financial Statements, 2013). There is a high possibility that Sainsbury will be sustainable in future. As the continuous increase in its market share and is maintaining its market positioning by following various strategies linked to environment and people. These are benefitting both the consumer as well as to the company (Sainsbury's reports rise in sales as market share rises, 2013). Sainsbury’s continues to grow due to loyalty of its old customer. But it is essential for the consumer to bear in his mind that with the growth of Sainsbury’s the price will raise since it is now in lower half. The more sustainable the competitive advantage of a company the more difficult it is for competitors to neutralize the advantage.
From all the facts of report it can be concluded that any organization’s success depends on market conditions (Williamson, 2012). Every business has various types of purpose and success that could be achieved if it meets objectives of its market. The factors that are affecting functioning of company are greatly influenced by financial performance. Many theories like Resource based view and value chain model are concluded (Collier, 2009). To meet out the objectives of organization financial analysis of activities of business is to be carried out. The competitive advantage of Sainsbury’s is making it one of the market leaders in retail industry. Sustainability of Sainsbury to maintain its market position and market share at current economic climate of UK is also being focused (Balkau and Sonnemann, 2010). It has been concluded from the study that competitive advantage creates a boundary for the firm and protect it from its rival. The market structure of the country in which company is functioning must be properly analyzed so, that it enables organization in forming various strategy to establish itself as a market leader and better position in marketplace.
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