Essay Sample on An Evaluation of Sainsbury's Asda Merger

According to Burt, Sparks, and Teller (2010, p. 173), changes in consumer demand and buying behaviour has a remarkable effect impact on the success of contemporary organisations. Modern firms must develop new strategies to attain operational sustainability. For example, the merger between Sainsbury's and Asda is a unique corporate strategy aimed to help the two companies regain their position in the global retail industry and, in turn, meet the evolving needs of their consumers (Butler, 2018, p.1). This study aims to provide a comprehensive evaluation of the merger between Sainsbury's and Asda. The research begins with a brief overview of the two organisations before conducting an external analysis of Sainsbury's environment to identify its opportunities and threats alongside assessing the attractiveness of the industry. Also, the study will evaluate the resources and key competencies of Sainsbury's firm to determine sources of its competitive advantage alongside using the SAFe criteria to analyse its merger with Asda.

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An Overview of Sainsbury's and Asda

Sainsbury's, which is a subsidiary of J Sainsbury plc, operates as one of the largest supermarket chains in the UK (Sainsbury's, 2019, p. 1). J Sainsbury plc has its headquarters in Holborn Circus, London. The company's founder, John Sainsbury, began its operations as a single shop on the street of Drury Lane in London in 1869 before becoming the largest grocery retailer in 1922 (Butler, 2018, p.1). Tesco, which is also a British multinational food retailing firm, overtook Sainsbury's to serve as the leading UK food retailer in 1995 until today (Burt, et al. 2010, p. 175). Asda also operates as a British supermarket and food retailer that bears its headquarters in Leeds, West Yorkshire (Raynolds, Dragun, Howard, & Rosewell, 2005, p. 237). The retail firm expanded rapidly from the 1970s to 1980s alongside acquiring multiple businesses, including Gateway Supermarkets (Grewal, Roggeveen, & Nordfat, 2017, 1). Asda served as one of the most profitable food retailers in the UK before its acquisition by Walmart, an American-based multinational retail firm. The food retailing company, however, regained its market position as the second leading retailing firm in the UK from Sainsbury's in April 2019 (Sainsbury's, 2019, p. 1). Asda also announced a strategic plan to merge with Sainsbury's in April 2018 to gain a 30% control of the UK grocery market (Butler, 2018, p.1). However, the competition and Markets Authority (CMA) blocked this merging plan.

External Environment Analysis of Sainsbury's

According to Fofana and Jaffry (2015, p. 462), external environment analysis evaluates the macro-environment forces, industry assessment, and competitor analysis concerning the growth of the target company. Macro-environmental factors are forces in the broader society that impact the company's internal operations. The industry environment consists of a set of contingencies that affect the activities of the company. Lastly, competitor analysis seeks to understand the impact of rivals on the operations of the company (Masih, Sharma, & Sharma, 2015, p. 82). This section provides a comprehensive analysis of Sainsbury's external environment analysis with a strategic focus on its business environment and industry.

Business Environment

Raynolds et al. (2005, p. 240) acknowledge the PESTEL model, which is an abbreviation of Political, Economic, Social, Environmental, and Legal forces that affect business operations, as the best framework for analysing its business environment. Analytically, Sainsbury's operates in a politically stable environment. However, the evolving trend of running highly globalized businesses can have a remarkable effect on the operations of the British supermarket (Masih et al., 2015, p. 84). The decision of the UK government to lower tax rates from 30% to 28% will also help the organisation to reduce its operating costs and, in turn, increase its profits (Burt et al. 2010, p. 177). Economic forces are also crucial when assessing the business environment of Sainsbury's. The ongoing food crisis across the world is a significant economic force in the operations of Sainsbury's (Grewal et al., 2017, 3). Such issues tend to increase the cost of raw materials and production, which compels the organisation to raise the prices of its food items.

Fofana and Jaffry (2015, p. 465) identified the rising cost of fuel is another economic factor that may negatively affect the Sainsbury's supply chain by increasing the price of its food items. Besides, social factors present a unique opportunity for Sainsbury's to meet the changing needs and preferences of its customers. Consumers are increasingly focusing on the obligation to purchase and utilize healthy food items (Masih et al., 2015, p. 87). Therefore, Sainsbury's can concentrate on selling healthy food items to meet the needs of its customers. Sainsbury's operates in a business sector witnessing constant changes in technology. For instance, UK food retailers use the internet to sell their products, attract and retain consumers, and increase their profitability (Butler, 2019, p. 1). Sainsbury's can also take advantage of using the internet to advertise its products, minimise the costs incurred through traditional marketing techniques, and increase its revenues.

Using the self-checkout machines can also help Sainsbury's to increase the loyalty of its customers by reducing the time spent on long queues while waiting for service. Lastly, the company can invest massively in Radio Frequency Identification Device RFID technology to create efficiency and minimise costs incurred when management its supply chain (Burt et al. 2010, p. 180). The push to reduce carbon footprint and, in turn, increase energy efficiency are crucial environmental factors that affect Sainsbury's operations. Therefore, the company must make a massive investment to improve its commitment to embrace the concept of green and cleaner production. Lastly, Sainsbury's operates in a highly regulated environment that compels it to remain ethical in its operations while complying with all the legal forces that affect its operations (Fofana & Jaffry, 2015, p. 467). For instance, the food retailing firm must comply with the UK tax laws, adhere to the labelling policies, as well as packaging approaches to attain sustainability.

Industry Environment

According to Masih et al. (2015, p. 89), the Five Forces model developed by Michael Porter, is the most appropriate tool for analysing the industry in which a company operates. The model helps in evaluating the competitive nature and the position of the organisation in a predetermined sector. Porter's Five Forces model include the threat of new entrants, rivalry among existing firms, bargaining power of suppliers, the threat of substitutes, and the bargaining power of buyers (Loeb, 2019, p. 1). Analytically, the threat of new entrants in the UK food retailing industry is a weaker force due to various factors. First, existing companies such as Tesco, Asda, and Sainsbury's have significant economies of scale that are challenging for new entrants to achieve. Such firms have a cost advantage over new entrants that cannot cater to the high costs of production (Simpson, 2019, p.1). Secondly, Sainsbury's embrace the concept of product differentiation, which help them to attract and retain more customers than new entrants.

Thirdly, there are high capital requirements for entering and operating a sustainable venture in the UK food retail market (Butler, 2019, p. 1). Lastly, strict government policies, such as licensing, prevent new firms from entering the market. Rivalry among firms operating in the UK food retailing industry is high. The country's retail market is a very overcrowded market with numerous companies operating both on the local and international front. Firms that pose a significant challenge to Sainsbury's include Asda, Morrisons, and Tesco (Loeb, 2019, p. 1). As a result, many retailers have embraced the concept of innovation not only to sustain but also increase their market share. The power of suppliers is a weaker force in the UK food retailing industry due to various reasons. For instance, numerous suppliers in the retail food industry imply that most of the vendors have limited control over the prices of their commodities. Also, most of the products sold by these vendors have low switching costs, are of fair standards, and less differentiated (Fofana & Jaffry, 2015, p. 480). Such limitations increase the ease of potential buyers, such as Sainsbury to change suppliers regularly.

On the other hand, the bargaining power of buyers in the UK food retailing industry is a weaker force due to multiple factors (Masih et al., 2015, p. 91). First, the number of suppliers in the industry is higher than the companies that produce and sell the final products. Such a difference implies that buyers have a limited number of firms to choose from when purchasing their preferred products. Limited firms mean that buyers have minimal control over the prices set by sellers. Secondly, product differentiation is very high in the industry, which in turn implies that buyers cannot find alternative products (Wiggins, 2019, p. 1). Lastly, buyers lack a significant threat the may compel them to consider backward integration. The risk of substitutes in the UK food and grocery retailing industry, on the other hand, remains a weaker force for Sainsbury's due to various reasons. First, the industry has a limited number of substitutes for the products and services provided by Sainsbury's. Secondly, the limited available alternatives come from low profit-generating firms, which gives Sainsbury's the opportunity to attain operational sustainability (Butler, 2019, p. 1). Lastly, most of the available substitutes are expensive than the products sold by Sainsbury's despite being of high-quality, which helps the latter to attract more customers while retaining the existing ones.

Identifying Opportunities and Threats

According to Raynolds et al. (2005, p. 245), the SWOT Analysis model is one of the most suitable tools for identifying the opportunities and threats that a company encounter in a typical industry. SWOT is an abbreviation of the strengths, weaknesses, opportunities, and threats of a company. Strengths and weaknesses evaluate the internal environment of the organisation while opportunities and threats examine its external environment (Grewal et al., 2017, 5). In most cases, conducting the above business and industry analysis helps firms to identify their opportunities and strength. The table below summarizes the SWOT analysis model of Sainsbury's.