PESTEL Analysis Of Supermarket Industry In Ireland, Lithuania, And Czech Republic

PESTEL Analysis of Supermarket Industry in Ireland, Lithuania, and Czech Republic

Question:

Discuss about the Corporate Social Responsibility in Business Market.

Sainsbury is the second largest chain of Supermarkets in United Kingdom. It is a very old supermarket in UK as it was founded in the year 1869 and was founded by John James Sainsbury. It belongs to retailing industry. There are 1,415 all around UK. The Supermarket is mostly UK based. Big stores of Sainsbury have 30,000 product lines.

The company is planning to expand its business in other countries of Europe, for this a market research is needed to be conducted. The countries that the Supermarket is considering for carrying its expansion strategies are, Ireland, Lithuania and Czech Republic. The following report consist PESTEL analysis of Supermarket industry in Ireland, Lithuania and Czech Republic. VRIO model of Sainsbury has been discussed in this report. Various opportunities and threats of Sainsbury has been discussed. The Strengths and Weaknesses of Sainsbury has also been discussed.

The target market selected for carrying out the expansion strategy in the future would be Ireland. Ireland is selected for the expansion strategy even after political instability because, despite of political instability Ireland is a promising target market. It is a growing economy. The lifestyle of people are changing people now prefer to by products from supermarkets. The most important reason for choosing Ireland is the country that has more purchasing power than Lithuania and Czech Republic. Supermarket industry is one of the growing industries in Ireland. The economic environment of Ireland is favorable for Sainsbury. The income class of Ireland is increasing which is giving scope for the business to grow and hence it would be beneficial for Sainsbury. Sainsbury offers a variety of health related products, juices, health drinks, fruits and vegetables. The growing trend that is making the people health conscious is making Sainsbury most suitable for customers of Ireland. The economic condition of Ireland is largely affected by the Euro zone crisis. The economic condition of any country plays a pivotal role in deciding which country is to be selected. The economic condition of Ireland is not good enough but there are chances that it might improve in the future times. The economic state the purchasing power of the country is affected right now but it will be improved because there will be growth in employment. People look for cheaper products and substitutes of the products. The customers avoid so most of the products in the super markets because they opt for substitutes or some other brand that is comparatively cheaper. The economy range of Sainsbury provides products of slightly cheaper range, they also offer discount in even premium range products so there are chances that the middle class might be attracted to Sainsbury.  After Brexit businesses were affected to a great deal because it hit the economic condition of the country. It hit the growth, the trade between Ireland and UK was affected. Before Brexit the conomic condition of Ireland was favorable and even the economists suggest that the economy of the country will improvise gradually and once it happens there is a scope for growth of businesses.

Sainsbury

Employment generation has incresed. Many products were imported from UK so after the Brexit import taxes were applied on the products that would be imported from UK. The export rate has lowered down that has lead to less spending of the companies and the employees are affected.

Sainsbury has been fulfilling the needs of the customers throughout the world. Brexit has disturbed the political condition of Ireland but Government is planning and strategizing to make amendments and policies will be implemented so that businesses would flourish. Another thing that attracts foreign investors is that Government of Ireland encourages foreign investors, FDI is very beneficial for the economic growth of the country. It will be beneficial for the people because it will help in employment generation and that is the reason why Government promotes FDI. The supply chain in the sector of retail and supermarket is very efficient so choosing Ireland for expansion strategy is a very wise decision. It would be very easy to allocate resources for the Supermarket.

The tax regulation of Ireland is not much liberated than the tax regulation systems of other countries. Sainsbury is looking for a country that has a lot of potential for growth so that in future it would be good for the Supermarket to flourish its business. The forecasting of the future trends of Ireland are very positive and it would allow business of the supermarket to flourish in the future, though many people prefer buying online but it cannot be applied for all the products of Sainsbury. People do not prefer to buy fruits and vegetables online. There quality of products matters the most then people generally prefer buying products by checking it. There are many online portals and it becomes difficult to decide from where to buy, which portal is providing the best quality of the product. In such scenario buying products from the stores is the best option and hence those who are quality conscious always buy things from stores and not online. Food items are those products that have to be of good quality.

Sainsbury can expand its business in Ireland as it is a country which is growing constantly. The macro economic conditions of the country are very favorable for the business to grow and develop in the future. Sainsbury can open a number of retail stores in many cities of Ireland and not just in Dublin. The people of Dublin have good purchasing power because there most of the people belong to the working class. Another opportunity for Sainsbury is that it can hire local people, because there are skilled people looking for employment opportunities. Sainsbury usually gets its products imported from UK, the distribution channel in Ireland is very good. Sainsbury can provide fresh fish for its customers because in Ireland it is very easy to get fresh fish and other agro based products. Sainsbury has a scope of collaboration with the local small retailers so that it can include a variety of products into its supermarkets and it will be beneficial for its supply chain management. This particular industry of retails has a great opportunity, scope for attracting investors and FDIs which will be very beneficial as it would help in improvising of products and services resulting in increased number of customers.

Target Market Selection – Ireland

The main threat that the company is facing is that there is lot of competition that the company is facing from other Supermarkets like Woolworths and Tesco. This companies are also very much liked by the customers for the value they are providing to its customers. Another threat that is faced by the country is due to technological change. The online portals to some extent have limited the customers of Sainsbury. In order to save their time they are buying products online.  Customers have become more aware then before and they are opting products that are cheaper, they usually compare the products and its features and buy that product that according to theme suits their budget.

Threat of new entrants- Supermarket industry is a growing industry and the threat of new entrants is one of the major concerns of the company because many new businesses try to enter the market and try to imitate the product and services that are already offered. They do not do any innovation but their business flourishes because they follow the pioneers of the business. They usually offer cheaper rates and hence attract some of the customers and make them switch to other brands. The industries where there is growth there are chances of threat of new entrants, same is with Supermarkets, there is great scope of growth and hence many new entrants are lured towards entering the market.

It attracts investors, which can both be a threat or and an opportunity, if investors plan to invest in Sainsbury it will be an opportunity for the company and if the investors plan to invest in the competitor’s business it will be a threat for the growth of Sainsbury’s business.

Threat of Substitutes- The threat of the supermarkets are the retailers, it happens that when the price of original product is increased customers switch to its substitutes. Substitutes are generally of cheaper price. If the customers think that buying from supermarket is costlier than buying from retail stores, they might switch towards the retailers. There are substitutes to individual products as well, if the price of certain goods and commodities are increased there are chances that people switch to its substitutes that might not be available at Sainsbury. Another threat associated with the substitutes is that competitors might reduce the price of the substitutes of the products available at Sainsbury and therefore the customers of Sainsbury might switch to competitors like ASDA and Tesco.

Opportunities and Threats of Sainsbury

Bargaining power of Customers- There is tremendous power of the buyers which makes the firms to reduce prices. It affects the business. It can be seen a lot in Supermarkets like Sainsbury where there are offers for customers and they buy products at cheaper rates. This shows the bargaining power of customers. Customers often compel the companies to lower the prices by offering discounts or giving freebies. The customers today easily switch to any other brand or company, which they think, has better services it is very difficult to retain customers when there is so much option available to them and hence Supermarkets often offer discounts and attractive offers to their customers.

Bargaining power of Suppliers- The bargaining power of suppliers are also known as market inputs. The suppliers of raw materials, labor force and financial institutions exercise power over the firms there are often situation that firm has no choice and have to agree to the terms and price of the suppliers. This affects the business a lot and supermarket business needs many suppliers, they have to negotiate and bargain with the suppliers. Every organization wants to work with the suppliers and hence they agree to the terms of the suppliers in order to retain them.

Industry rivalry- The competitors are the main threats to Sainsbury. The competitors of Sainsbury are Tesco and ASDA because they also sell similar products in the similar product ranges. Sainsbury is facing a harsh competition from Tesco, which is also preferred by many customers. They compare the prices of the products and based on that choose the desired Supermarket, the product range provided by Tesco is also divided into various ranges which belong to category of economy and premium. This creates conflict in the preferences of the customers and they decide between the two supermarkets, then the customers do the comparison very keenly which often results in their choosing Tesco (Adebanjo 2016). 

Sainsbury is a supermarket and is the second largest supermarket in UK. Several attributes are involved in making Sainsbury one of the best supermarkets. The wide range of products that are offered by Sainsbury are   available at comparatively cheaper price  this makes it favorite for the customers. Sainsbury offers a wide range of product that includes local supplies of fresh fruits and vegetables. Sainsbury run interesting campaigns and offers good prices for their customers (Lawrence and Dixon 2015).

Sainsbury also imports some of its products from other parts of Europe like France, Germany and Spain. Exporting involves a large amount of cost. One of the major drawback is that Sainsbury do not have expansion plans, it is mostly UK based. In scenario of any issues with food retailing in UK, Sainsbury will surely suffer a lot (Knott 2015).

Strengths and Weakness of Sainsbury

Value- Sainsbury has been one of the finest supermarkets in the world, the value it has created has helped in increasing its customer base in many countries. The company has been able to create a good will in the society for a number of reasons. The organization is taking care of the environmental issues that needs to be addressed. The issue of Carbon emission by the supermarkets with open freezer has raised a lot of concerns. Sainsbury since then has stopped using open freezers in many of its Supermarkets to reduce the carbon emissions from its end. The supply chain of the company is very efficient, it imports some of it products form UK but all the fruits, vegetables, meat and fishes are usually form the local market. The company has been awarded for providing fresh food products to its customers. The employees of the company are very efficient as they pay attention to the requirements of their customers. The efficient staff members of the supermarket are also one of the value creation reason of the company (Homburg, Stierl and Bornemann 2013).

Rareness- Sainsbury provides local fresh seasonal fruits and vegetables. Though some of its products are being imported from UK, other products are being taken from the local farmers. This particular initiative is taken for the welfare of the local farmers and also making their customers happy by providing them fresh agro products. Most of the Supermarkets have stale fish products but Sainsbury provides fresh fishes because they are usually from the local markets. Apart from that Sainsbury also gives exciting offers to their customers especially in the health drinks for its health conscious customers (Hughes and Merton 2014).

It is the quality that they provide is difficult to be achieved and this is the reason why customers prefer Sainsbury over other Supermarket. Sainsbury is offering a wide range of products to its Customers. The Unique selling proposition of Sainsbury is that it provides good quality of products at a price that it is lower than its competitors. To maintain a low price is an attribute that cannot be easily found in any other businesses because the aim of very business is profit maximization. (Josefy et al. 2015).

The Nectar Loyalty card of Sainsbury which was introduced in the year 2002. Under this, scheme customers earn points from everything they buy from Sainsbury. For every pound that the customers spend, they get one point. Another very interesting advertising campaign of Sainsbury is Active Kids. Annually Sainsbury runs voucher scheme for the local organizations so that equipments for sports and other activities can be redeemed. Customers of Sainsbury can earn their vouchers from their shopping when they donate to any organization they choose which credits to their account so that it can be spent on items from the catalogue (Aluko and Knight 2017).

Threats to Sainsbury – Competition, Technological Change, Threat of New Entrants, Threat of Substitutes, Bargaining Power of Customers, Bargaining Power of Suppliers, Industry Rivalry

Organization- Sainsbury as an organization is very capable and efficient in effectively utilizing all the resources that is available to them. Sainsbury is one of the largest supermarket chains in United Kindom. With a variety of products that caters for its customers that includes, food products of their own brand, there are over 6,500 different product line. There are also premium quality food brands in 1100 different product lines. The supply chain of Sainsbury is operated from 13 different regional distribution centers and there are two national distribution centers for goods that move at slower rate. There are two frozen food facilities.  The market share captured by Sainsbury is 16. 9%. There are three divisions of the company, Sainsbury’s Supermarkets Ltd, Sainsbury Bank and Sainsbury’s Argos (Howes 2013).

There are a variety of modes of entry that Sainsbury Supermarket can choose for entering ionto another market in any another country and can expand its business. This strategy is also known as expansion strategy. The various modes of entry are

Exporting is the process through which good and services produced in a country is sold to another country. There are two types of exporting direct exporting and indirect exporting.

Direct exports- Direct mode of exporting is the basic mode of exporting is the most commonly mode of entering another market. The main feature of direct export is that there is no requirement of intermediaries.

Passive exports refer to treating and filling overseas orders like domestic orders.

Indirect exports- Indirect export is the process of exporting with the help of domestic intermediaries. In indirect export the export do not have any control over their products.

In this entry strategy international licensing agreement is made that lets the foreign firms to have exclusive or non exclusive facility for manufacturing another proprietor’s product for a period that has been already fixed. In this strategy the licensor in the home country gives limited rights or limited resources to the licensee.  The rights and the resources available to the licensee are patents, trademarks, managerial skills, technology and others that will make the selling or manufacturing in the home country. In this strategy there is no requirement of opening a business overseas (Glasson, Therivel  and Chadwick 2013).

In this business strategy the semi independent business owners also known as franchisees has to pay a fees and royalties to a parent company, which gives the franchisees the right to be identified with its trademark, in order to sell the product and services of the foreign and also use the business format system of the parent company.

Conclusion

In this type of projects the clients hire contractors for designing and construction of new facilities and train the manpower. Process is used to transfer or export the process and technology to another country. In this projects the companies can make a plant in any foreign country and earn profits (Sniukas and Morasky 2016).

Under this strategy there are two types of modes, Greenfield Investment and the other one is acquisitions. In Green field investment new and wholly owned subsidiaries are established. Acquisitions are another mode which is the most common entry strategy because of its quick and easy access. (Fernie, Fernie and Moore 2015).

The aim of the joint ventures is, market entry, risk or reward sharing, technology sharing, and joint product development. It also has some other advantages like, political connections and distribution channels.  Joint ventures are created by two or more parties, both the parties in Joint venture share ownership. Joint ventures are generally seen in the Oil and gas industry (Taylor 2013).

Amongst all the market entry strategies, the best market entry strategy for Sainsbury would be to Franchising. Sainsbury can open franchisees in Ireland it would not cost much but would be very beneficial for the company to earn significant amount of profit. It is one of the best methods of expansion and it is most commonly used.  There are many advantages of market franchising  (Wilson, Alexander and Lumbers 2014).

Capital has always been the most common barrier for entering in to another country because a significant amount of Cost is involved. If Sainsbury opts franchising as a market entry strategy then the Supermarket will not have to invest a he capital because it does not have a risk of debt or cost equity. The cost involved in opening the store will be invested by the franchisee, the franchisor can grow can grow without having to invest or pay the capital establishing the business, Sainsbury will only have to sign lease and make different contracts. It is an expansion strategy does not have any liability. The franchise will be beneficial for both Sainsbury and the party selected as franchisee. It provides independency to the frachisee, they get already made products and services. It is attractive to the customers, they can expect quality from the store that is associated to the business. Banks are also very supportive towards franchising therefore capital is not much of an issue in Franchising. Another market entry that can be opted is licensing. Sainsbury can give license to operate in its name in another country, the benefits of licensing are

Issuing a licensee to another party gives immediate earnings, the agreement requires various guaranteed revenue for licensing company. The licensee has to to pay for holding license (Kolá? 2014).

The licensing will provide Sainsbury to promote its supermarket in Ireland. This offers brand credibility and recognition benefits. It helps the brand to get additional support. The entry to market of any other country is very quick and easy. The capital requirements in licensing requirement are very less. There is a scope of large returns on investment in licensing which can be received in a very short span of time. The risk involved in licensing is like franchising, very less (Castaño, Méndez and Galindo 2015).

Another market entry strategy could be partnering. Sainsbury can partner with other supermarket chains that operate in Ireland or it can partner with any other retail in Ireland. They can offer their products to the retail store, or get partnered with local suppliers, so that the problem of supplies of fresh fruits, vegetables and fishes does not occur. One of the major advantages of Partnering is that Sainsbury will not have to bear the risk alone neither will it have to invest a huge capital in opening the business in another country (Leih and Teece 2014).

Conclusion

Sainsbury is one of the best Supermarket in United Kingdom, it has been catering the needs of its customers from the past 150 years. This has made the company create a customer base in United Kingdom. It is mostly operational in UK. The company is not extended in many parts of Europe. It is very important for Sainsbury to expand its business beyond UK in order to grow and expand its business. Out of the three countries, Ireland has been selected for expansion through either franchising or licensing. Ireland is selected because the country is a growing in terms of economy. Though the political condition is little disturbed but the government is always welcoming the foreign investors, the tax system also makes it easier to choose Ireland for expanding the business. Another factor is that the lifestyle of people has changed and they like buying from Supermarkets because they can buy many things at a single store. Since it is preferred by people so it is clear that there is a scope for the business to flourish in Ireland.

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