Sainsbury - a Case Study

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Content 

1. Introduction        

2. Analysis        

2.1 Internal environment        

2.1.1 Strengths        

2.1.2 Weaknesses        

2.2 External environment        

2.2.1 Opportunities        

2.2.2 Threats        

3. Strategies        

4. Conclusion        

5. Recommendations        

6: References        

Word count: 1917

1. Introduction

Sainsbury’s founded in 1869 by John James Sainsbury and his wife Mary Ann Sainsbury in London, launched into the Egyptian market in March 1999 with a vision of rapid expansion (Sebora, Rubach, and Cantril 2014). The progression into the market was not as smooth as expected due to the sinking loss and the increasing consumers boycott issues. Finally it ended up with selling all the branches to the local competitors with a cost up to ￡125 million (Bowers 2001). For this report, I will initially analyze the internal environment of Sainsbury’s in Egypt by using the framework of VRIO and value chain to study the strengths and also the weaknesses of the SWOT. I will then analyze the external environment with the framework of PESTEL that is used to state the rest of the aspects of SWOT which is opportunities and threats. Eventually, I will look at the strategies exerted to develop Egyptian market.

2. Analysis

2.1 Internal environment

The framework of VRIO which is the acronyms of value, rarity, inimitability and organizational support and value chain that categorizes the main and support activities inside an organization to create a product or service are utilized to study the competitive capabilities and weaknesses of Sainsbury’s (Johnson et al. 2015). 

2.1.1 Strengths

The percentage of 11.9% of market share made Sainsbury’s the second-largest UK retail supermarket and its Shaw’s markets chain with nearly 150 branches was number two in US market. In reality, Sainsbury’s was the 14th largest grocery retailer in the world (Sebora, Rubach, and Cantril 2014). All these achievements had generated abundant experiences and skills of how to operate the company and how to achieve the competitive advantage or even competitive strategy, which could largely contribute to the market development into Egypt.

In 1999, Sainsbury’s received a great popularity everywhere in Cairo because of the reputation of selling products with a much cheaper price than the local grocery stores. The store was crowded with numerous consumers, even some of which were competitors (Sebora, Rubach, and Cantril 2014). Beyond that, as it is showed in Figure 1, there were overwhelming 111 outlets in Cairo & Alexandria comparing to the second and third largest competitors Ragab sons and Fathalla that had only 10 and 7 branches in the same area respectively. In addition, western-style were still a rarity since most of the competitors were local (Figure 1). As a result, Sainsbury’s were able to benefit from this market by enjoying the pre-emption of scarce resources like Edge(more will be talked in the strategy part) and building valuable relationship with key stakeholders such as customers and governments as a first-mover. A significant entry barriers were also erected for the late entrants as the switching cost would be high due to the customers’ brand loyalty.  

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Figure 1(Sebora, Rubach, and Cantril 2014)

2.1.2 Weaknesses

Nevertheless, there were also some weaknesses that could be seen in the logistics and labor system. One of the crucial headache that bedeviled Sainsbury’s was the underdevelopment of the infrastructure in Egypt where the transportation were un-effective and costly. Thus the logistical difficulties would demand more investment on the construction of superior transportation systems and finally put more burden on cost (Kapner 2001).

Another shortcoming was related to poor human resource management. Even though 64 expatriates from Sainsbury’s headquarter were assigned to develop the Egyptian market and train the personnel required to run the stores, the employees were not in consistent with the mission and lacked direction even after a short period of training. Moreover, the managers did not accept the suggestions made by the employees, leading to lower level of employee loyalty which eventually led to a high level of uncertainty (Sebora, Rubach, and Cantril 2014). 

Not only the employees but also the outsourced activity had met problems. The performance of the outsourced activities did not go as well as expected by Sainsbury’s. Last but not least, the process into the Egyptian market showed recklessness. For example, a driver was paid four times as much as the normal salary because the compensation and benefits scheme was not adjusted for the local circumstances (Sebora, Rubach, and Cantril 2014).

2.2 External environment

In order to analyze the macro-environment of Sainsbury, the framework of the PESTEL is exerted to analyze the impact of the political, economic, social, technological, environmental and legal factors on the operating process of Sainsbury’s in Egypt (Johnson et al 2015). The PESTEL analysis reflects various factors that contribute to both the opportunities and threats to the development.

2.2.1 Opportunities

The increasing economic development had made Egypt an attractive country to invest with the growing GDP from $84.8 billion in 1998 to $97.9 billion in 2000, which showed a considerable potential to the growth (Figure 2). Moreover, the growing population is a plus for retailers as the market scope is also expanding along with the growth in demand. Among them, 65 million people lived in a very centralized region with only 5 percent share of food market taken by the limited supermarkets. Apart from this, food consumption in Egypt cost triple as much as the income spent by British consumers. Nearly one-sixth of the 69 million Egyptian consumers were affordable to purchase imported food that had attracted most Egyptian consumers (Figure 2). Simultaneously, the demand for the prepared foods was rising substantially due to the increasing number of working women who had strengthened their purchasing power and had less time to cook (Abdi and El Masry 2000). Hence, Egypt showed a huge promising power to Sainsbury’s with promising growth.