Marketing in a Global Context: Task 1 - Market AnalysisSainsburys

Marcus Langmaid

Keifer Lee

Sheffield Hallam University

Word Count: 2,718

Contents1.0 Sainsbury's background...................................................................................................................2

1.1 Sainsbury's information...............................................................................................................2

1.2 Current Market Position..............................................................................................................2

1.2.1 Sainsbury's strengths and weaknesses.................................................................................3

1.3 Experience in international markets............................................................................................3

2.0 Rough market screening..................................................................................................................4

2.1 Accessibility, Profitability and Market Size..................................................................................4

2.2 Business Portfolio Matrix.............................................................................................................6

2.3 Market Ranking...........................................................................................................................7

3.0 Fine Market Screening.....................................................................................................................8

3.1 12 C's Framework........................................................................................................................8

3.1.1 Culture..................................................................................................................................8

3.1.2 Customer Buying Behaviour.................................................................................................9

3.2 Analysis of Market Competitors................................................................................................10

3.3 Customer Segmentation............................................................................................................10

4.0 Summary of findings and SWOT Analysis.......................................................................................11

Appendices..........................................................................................................................................12

Appendix A - Leading online grocery retailers' estimated market shares (excluding VAT), 2015....12

Appendix B - Emigration, immigration and net migration in the UK 1991-2015..............................12

Appendix C - PEST Analysis for China...............................................................................................12

Appendix D - PEST Analysis for United States of America................................................................13

Appendix E - PEST Analysis for Germany.........................................................................................14

References...........................................................................................................................................15

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1.0 Sainsbury's backgroundThe purpose of this report is to probe the global market development opportunities for Sainsburys. This report will entail analysis of the organisation in general and an evaluation of three different markets that Sainsbury's could hypothetically break into. This will then be narrowed down to one market which is a best fit for Sainsbury's.

1.1 Sainsbury's informationSainsbury's have been trading since 1869, where John James Sainsbury along with his wife Mary-Ann opened their first store down Drury Lane, London. By 1882, they started to sell their own branded products (Sainsburys plc, 2016).

Sainsbury's have five values throughout their business which is stated as 'Our values are part of our long-term strategy for growth and make good business sense' (Sainsburys plc, 2016). These values are as follows; Best for food and health, Sourcing with integrity, Respect for our environment, Making a positive difference to our community and A great place to work. The values are crucial to Sainsbury's vision and are drilled into their colleagues throughout training to allow customers an ability to witness this.

In an attempt to entice customers away from their competitors, Sainsburys's utilise Nectar cards as a method of loyalty throughout their UK customer-base.

Loyalty cards can be used in numerous of tangible organisations or on-line. Blackmore (2015) identifies that Nectar is the most popular loyalty scheme within the United Kingdom, Nectar currently have around 19m members which is closely followed by Boots and Tesco with 17.9m and 16m members respectively.

1.2 Current Market PositionSainsbury's currently operates with over 1,200 stores throughout the UK and these ranges from convenience set-ups to supermarkets (Sainsburys plc, 2016). With assets as such as this, Sainsbury's utilises the experience of around 161,000 employees (Sainsburys plc, 2016) this however is significantly lower than Tesco's tally of around 476,000 colleagues (Tesco plc, 2016).

Carroll (2016) claims that Sainsbury's are currently second in terms of market share within the UK grocery market standing at 15% with only Tesco above them at 38% however, they are closely followed by Ocado and ASDA at 14% and 12% respectively, a diagram of this information can be found in Appendix A. Sainsbury's Chief Executive Officer, Mike Coupe, has stated that 'We will do whatever we need to do to remain competitive. We are confident that the quality of products we sell and the service and range we offer will enable us to outperform our mainstream competitors (Shand, 2016), Mike Coupe and Sainsbury's have since made an acquisition of Argos in a £1.4bn deal (Criddle, 2016). Mike Coupe believes that this new procurement of Argos will give Sainsbury's a 'winning contribution of service and range' (Hobbs, 2016).

Within the last two years, Sainsbury's financial performances have declined with underlying group sales (excluding VAT) standing at £23,752m in 2015 whilst losing 1.1% with the same statistics accounting at £23,495m in 2016, however in 2015, Sainsbury's registered a -£166m deficit in profits whereas in 2016 the profit has risen to £471m which shows extreme progress (Sainsburys plc, 2016).

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1.2.1 Sainsbury's strengths and weaknessesTable 1: Sainsbury's Strengths and Weaknesses

Strengths Weaknesses Reputable brand and within the 'Big

four' supermarkets (Tesco, Sainsbury's, ASDA and Morrison's)

Employee strength of 161,000 colleagues.

Have over 1,200 trading premises. Strong Christmas advertisements for

past three years leading to positive performances during the festive period.

Tough market with tough competition e.g. Discounted retailers (Lidl and Aldi).

Forecasted food inflation increases from -0.8 in Q4/16 to 1.0 in Q3.17 to 1.7 in 2020 (Trading Economics, 2016).

Business currently limited to the UK market.

1.3 Experience in international marketsSainsbury's currently lacks experience in international markets nevertheless examples can be used into why UK grocers have struggled to break into foreign markets such as Tesco. Tesco had plans to dominate China however it is claimed to be a tough market and ended up in Tesco selling a majority stake to a Chinese investment company (Butler, 2015). Whereas, in the United States of America, Tesco tried to infiltrate the U.S. grocery market which is already dominated by Wal-mart who subsequently own ASDA, a competitor to Tesco within the UK market. Tesco introduced their subsidiary business 'Fresh & Easy' brand to the American public in 2007. Sullivan (2013) believes that the recession was to blame for the collapse of Fresh & Easy from stating ' In the recession, many people had time, just no money. That reduces the market for ready meals. But more crucially, this kind of food requires a change of habit. It means you have to think differently about how you shop and what you shop for'.

In 2016, Sainsbury's announced that they would be expanding their presence in China by doubling the number of lines they sell there, this is will be done by expanding its trial with Tmall Global. Jahshan (2016) explains that this expansion is down to increasing demand within China for foreign products. Appendix B indicates the outflow of UK citizens migrating to other countries. The Migration Observatory (2016) reflects on that in 2015 297,000 UK citizens migrated, this is a 4.21% increase from 1991 where the outflow stood at 285,000. Therefore, this could be a reason that Sainsbury's are witnessing increased demand in their products within China as more UK citizen resides there.

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2.0 Rough market screeningCooper, R.G. et De Brentani, U (1984) states that 'The screening of new product proposals is the first critical evaluation in the new product process'. This statement describes how Sainsbury's will undertake an analysis of -which market is best for them to break into.

In this section, an analysis of each market will be considered and will aid identification of their desirability and ranking. China, America and Germany will be considered for screening.

2.1 Accessibility, Profitability and Market SizeThe grid that has been compiled below will aid the decision between three different markets. A PESTLE analysis (See Appendix C,D&E) for each market has also been developed to accumulate a greater understanding of the market and will highlight any underlying issues, this will help Sainsbury's remain proactive. Utilising this grid and PESTLE analysis will help to predict any external environments that may hinder Sainsbury's objectives expanding into international markets.

Table 2: Accessibility, Profitability and Market size for China, America and Germany.

GDP in trillions of U.S. dollars.

Criteria China America GermanyAccessibility Second largest

economy in terms of GDP standing at $19.0 (CNN money, 2016).

China is on average 4,867 miles from Sainsbury's headquarters.

The UK government is currently negotiating 'an ambitious free trade deal' with China (Ahmed, 2016) Wallace, 2016). This will result in no tariffs being charged to companies who wish to trade between the two nations.

Out of a ranking between A1 -

Largest economy in terms of GDP accumulating at $19.0 (CNN Money, 2016).

Washington DC is roughly 3,663 miles from Sainsbury's headquarters.

There are currently no free trade agreements between the UK and America however as a result of Brexit and the new President-Elect, negotiations look promising (Ross, 2016).

The United States are considered to be a A2 rating meaning that the political and economic situation is sound and the business climate rating is

Fourth largest economy in terms of GDP equating to $3.5 (CNN Money, 2016).

Berlin is approximately 682.9 miles from Sainsbury's head office in London, meaning Berlin is closer in logistics terms.

Along with America, the Australian government is keen to enter into a free trade agreement with the UK following Brexit (Ross, 2016).

Both the country risk rating and

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E, China is ranked B (Acceptable Risk) in the country risk rating whereas the business climate rating is also ranked B which is below 'Acceptable Risk' (GlobalEdge, 2016).

standing at A1 (GlobalEdge, 2016).

business climate rating is at A1, meaning very low risk (GlobalEdge, 2016).

Profitability According to Nationmaster (2016), in 2014 China were ranked at #79 in the global average monthly disposable salary with a low amount of $731.14.

China GDP per capita: $14,300 (CIA, 2016).

Nationmaster (2016) claim that in 2014, U.S.A were ranked #12 with an average monthly disposable salary of $3,258.85.

U.S.A. GDP per capita: $56,100 (CIA, 2016).

Germany is ranked at #21 in the same table with an average monthly disposable salary of $2,851.85 (Nationmaster, 2016).

Germany GDP per capita: $47,000 (CIA, 2016).

Market size China's online grocery market is said to be the world's largest however it is set to hit $180bn by 2020 (IGD, 2016).

The U.S.A's grocery market is thought to be a Duopoly with Walmart and Kroger dominating the market in 2014 (Statista, 2014).

The German grocery market is thought to be an Oligopoly as there is three dominate players e.g. Edeka, Lidl and Rewe who collectively own 60.2% of the market (Statista, 2013).

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From the research compiled, it is apparent that there is no imminent free trade agreement between the UK and the prospective countries, therefore there is currently no market that would be advantageous to Sainsbury's in this sense. In competition terms, U.S.A. would not be an ideal choice as Wal-mart is dominating the market and is harder to enter the market, this is one of the reasons that Tesco failed within the U.S.A. market.

Therefore, from the PEST analysis that has been conducted in Appendix D, for the time being United States of America is not a viable option for Sainsbury's in the present, this is down to the political instability and the nation suffer a high deficit. America would be attractive to many organisations due to their A2 country risk rating and their A1 business climate rating.

The crucial evaluations to be made on China and Germany is that in a sense, both states have a fairly unwavering political situation. China and Germany are also within the top five largest economies globally therefore this is more promising than United State's deficit. Consequently, making China and Germany a more attractive proposition to expand operations to.

As indicated in table 2; China's online grocery market is the largest in the world and with Sainsbury's already having a well-established online infrastructure; this could potentially be a great blend of strengths and opportunities to maximise profits in a new international market.

2.2 Business Portfolio Matrix

This model was established by the Boston Consulting Group in early 1970's, the model is evolved around interpretations that an organisation's business units can be categorised into four areas that comes from a combination of market growth and market share. This model will be utilised within this report to gain a sound understanding into China and Germany's country attractiveness and Sainsbury's compatibility with each country.

Table 3: Business Portfolio Matrix

Germany

With the aid of the research undertaken in table 2 and appendix E. It could be argued that Germany would be considered as a primary opportunity. Germany has an A1 country risk rating and business climate rating indicating a high country attractiveness. Germany's economy is fairly secure being the fourth largest economy in the world, this has allowed for the average monthly disposable salary to be $2,851.85 meaning that consumers will have more disposable income to use on food in comparison to China's average monthly disposable salary to be $731.14, this is a concerning decrease of -74.36% considering that China do have a substantially larger economy.

For any prospective Sainsbury's colleagues in West Germany, they would be entitled to €9 p/h whereas in East Germany incl. Berlin, colleagues would only be entitled to €8.50 p/h (WageIndicator, 2016).

China

Utilising the PEST analysis in Appendix C and the results in table 2, China is more likely to be deemed a 'Secondary Opportunity', with China having a High-Medium country attractiveness and a Medium

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compatibility with Sainsbury's. Yes, China do have the second largest economy in the world and the world's largest online grocery market, their GDP per capita totals at $14,300 whereas Germany's equates to $47,000 which is a -69.57% decrease in GDP per capita, this could be down to the fact that China's population peaks at 1.4bn on the contrary Germany's population is only around the 82m mark however China's average monthly disposable salary is considerably a lot less than Germany as previously mentioned.

Sainsbury's compatibility with China is fairly high with Sainsbury's intending to push through more lines into the country and the relatability of a positive online presence however for logistical reasons in comparison to Germany; Germany would be the option with merits.

2.3 Market RankingTable 4: Market ranking matrix: taken from Lee & Carter model (2012)

Weighting China GermanyMarket Attractiveness

Market size and growth

40% 7 (2.8) 8 (3.2)

Ability to conduct business

10% 6 (0.6) 7 (0.7)

Risk of investment

30% 5 (1.5) 5 (1.5)

Disposable income

20% 3 (0.6) 7 (1.4)

Total score: 100% 21 (5.5) 27 (6.8)

Ability to compete

Product fit to market demand

50% 7 (3.5) 6 (3.0)

Pricing 10% 6 (0.6) 6 (0.6)Ease of trade 20% 3 (0.6) 7 (1.4)Obtainable market share

20% 5 (1.0) 6 (1.2)

Total score: 100% 21 (5.7) 25 (6.2)The information collected in Appendices C & E was applied in order to aid decision making within this matrix. China's overall score did stay consistent totalling 21 each time then with a weighted score of 5.5 and 5.7 on both occasions whilst Germany gained a score of 27 and 25 with weighted scores of 6.8 and 6.2. China in no doubt does have a slightly larger economy than Germany nevertheless with China's average monthly disposable salary being at a low figure this warranted a 3 ranking for Disposable income and China's ease of trade is ranked poorly down to the fact that logistics and transportation of products would prove to be more costly meriting the score. In this instance, the evidence is apparent that Germany is the ideal market to fine market screen.

3.0 Fine Market Screening3.1 12 C's FrameworkThe 12 C's framework comes from (Doole & Lowe, 2012) and has been helpful in gaining a broader understanding of the potential market in Germany. The framework consists of 12 aspects e.g.;

1. Culture/consumer behaviour2. Channels

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3. Commitment4. Currency5. Communication6. Capacity to Pay7. Caveats8. Contractual Obligations9. Consumption10. Choices11. Concentration12. Country

3.1.1 CultureDoole & Lowe (2012) explains culture as the inclusion of taught "beliefs, values and customs" which influences the consumer behaviour of the country's market. This statement tends to be true as there is culture throughout the globe, from tribes coming from the Amazon who practice rituals as these have been taught and passed down from many generations to extremist communities who possess questionable extreme values however this has been taught to them.

Culture in business is thought of to be very important and to negotiate with other parties that may come from foreign shores should be treated with respect towards their "beliefs, values and customs". If not then loss of business could become a consequence. For example; In China, the heirarchal structure is valued as important therefore before any potential meeting, the individual should research and find out who is the most senior in the room in order to address them first.

Hofstede's cultural comparison of countries (2014)

In this chart, it shows the six cultural differences and has compared these differences between Germany and the United Kingdom.

'Power Distance', Hofstede (2015) explains this dimension deals with the fact that all individuals are not equal - it expresses the attitude of the culture towards these inequalities

amongst us. Within the graph above, both UK and Germany have been ranked with 35. This score is relatively low showing that both nations share the same social parity and freedom.

'Individualism' is spoken by Hofstede (2015) that it is the degree of interdependence a society maintains among its members. Germany did rank slightly lower than the UK in this dimension meaning that the Germans still are perceived to having an individual lifestyle similarly to that of the UK.

Hofstede (2015) claims that if a high score within the 'Masculinity' dimension is achieved, then this is likely to mean that the society has a drive for competition, achievement and success. A low score in this dimension represents that the society shares powerful values in caring for one another and good quality of life. In this instance, the UK and Germany cannot be separated; the score reads that

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both nations are equal in masculinity meaning that the majority of the society is looking for success. This can be represented in a truthful perspective as a lot of students across the EU are wanting to undertake degrees in order to succeed and this argument is supported by the fact that in 2000/01, 1,948,135 students attended a UK University, with this figure increasing 16.32% to 1,948,135 (HESA, 2016).

'Uncertainty Avoidance' is the methods that a society deals with the fact the future can never be known (Hofstede, 2015). With Germany nearly doubling the overall score of the UK this indicates that Germans may occasionally create beliefs in aid of dealing with uncomfortable situations.

Hofstede (2015) states that the 'Long Term Orientation' dimension describes how every society has to maintain some links with its own past while dealing with the challenges of the present and future. In this dimension Germany soars above the United Kingdom leading to think that Germany is a more logical country in general.

'Indulgence' suggests that the UK is very more apt in this dimension in comparison to Germany, meaning that Germany with a low score are more restrained than the UK and do not tend to go out of their comfort zone (Hofstede, 2015).

In comparison, it is clear to see that even between the UK and Germany, there are significant differences between the two nations in terms of cultural behaviour, this is strange as the country are both apart of the same Continent however Hofstede's cultural comparison framework is a useful tool to find out the differences between what would seem to be two analogous nations.

3.1.2 Customer Buying BehaviourCustomer buying behaviour interlinks with culture as customers have wants and wishes dependent on what they are accustomed to which disturbs the brand the consumer wishes to purchase from.

China was considered for Sainsbury's to potentially break into its grocery market as Sainsbury's are currently trying to introduce certain lines overseas. However, Germany is such an alike state to the UK where customer buying behaviour is not too differentiated.

It is no secret that within the UK grocery market, consumers are looking for bargains and are shopping little and often, this is to combat wastage of food meaning not losing money as a result, this new trend within the UK market has seen a major boom in high street convenience stores appearing all over town centres.

3.2 Analysis of Market CompetitorsA basic principle in business whether you are attempting to break into a domestic market or an international market, research has to be compiled to aid decision making but gaining a good understanding on your potential competitors is crucial to any success of a business. Sainsbury's are a well reputable brand with their domestic market however may be unheard of in Germany therefore they should not rest on their laurels as this could potentially be disastrous to the group. As discovered in table 2, the German grocery market is mainly an Oligopoly with three main players; Edeka, Lidl and Rewe who own a resounding 60.2% of the market.

Table 5: Analysis of Market Competitors

German supermarkets Organisation FactfileEdeka Leading retailer within the market (Statista, 2015).

Holds 25.7% market share (Statista, 2015).

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Headquarters situated in Stadtpark (Edeka, 2015). Roughly 11,400 stores (Edeka, 2016).

Lidl Second largest grocer in the German market (Statista, 2015). Holds 18.5% market share (Statista, 2015). Developed in 1930's (Lidl, 2016). Opened first UK store in 1994 (Lidl, 2016).

Rewe Third largest retailer within the German market (Statista, 2015).

Not far behind Lidl with a 16% market share (Statista, 2015). Parent company to three international brands e.g. Billa,

Merkur and Adeg (Rewe, 2015).

3.3 Customer SegmentationCustomer segmentation aids a company in determining who their customers are and this could be done by the use of a pen picture or into a table as shown below. The information from this will help Sainsbury's to recognise which segment is the most profitable.

Table 6: Customer Segmentation for Sainsbury's customers

Segment name Segment profileStingy students Always looking for bargains or purchases

the Sainsbury's basic range. Uses Nectar loyalty card as an incentive

to shop. Parents can use a Student meal ticket

gift card where they can top up a gift card for their offspring to spend at any Sainsbury's nationwide.

Shops little and often. Regularly purchases alcohol.

Shelf surfers Typically a busy individual ie. businessman/parent who only pop in store to purchase something quickly e.g. lunchtime meal deals.

Gets annoyed with queueing. Normally spends between £5-10

during a visit.Healthy eaters Tends to purchase Sainsbury's 'Be

Good to Yourself range'. Are conscious of the health wheel

that is provided on the packaging.

4.0 Summary of findings and SWOT Analysis

In conclusion, after undertaking the secondary research into Germany, it soon became apparent that this nation would be the most beneficial to Sainsbury's. This being because of the average monthly disposable salary of $2,851.85 that the German reportedly gain in remuneration. Germany does have some big players in the market however the evidence has been compiled to put forward a good

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case for Sainsbury's to break into the German grocery market. Sainsbury's are a well-established brand that could fare well in an already developed economy.

A SWOT analysis has been compiled to conclude this report to discover any potential current or future internal or external factors that could hinder Sainsbury's objectives when breaking into an international market.

Strengths Second largest grocery retailer within

the UK. Well known for their excellent customer

service. Wide range of products from Gluten-

Free to Halal to World Foods. Already seen an interest in their

products from different international markets.

Weaknesses Already three key players within the

German market. Currently no distribution chains in

Germany. Reduction in profit throughout the

Sainsbury's group in recent times.

Opportunities A gap in the market for Sainsbury's to

offer new exciting foods from around the world.

Introduction of Nectar in an international market.

Threats No prior experience within an

international market. Difficult barriers to entry and the three

main players won't allow Sainsbury's into the market, likely to start a supermarket cartel

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AppendicesAppendix A - Leading online grocery retailers' estimated market shares (excluding VAT), 2015

Appendix B - Emigration, immigration and net migration in the UK 1991-2015

Appendix C - PEST Analysis for China

Political Economical Socio-cultural Technological The Communist

Party of China is the party that is currently governing The People's Republic of China.

Stable governmental

Unemployment rate currently sat at 4.04% in the Q3 of 2016, which has fluctuated between 4.04% and 4.05% since Q3 of 2015 (Trading Economics, 2016).

One of the world's

Su et al. (2001) claim that the Chinese citizens prefer to obtain indirect messages as the country is an extremely

Science and technology development advances are encouraging.

701.3m internet users

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atmosphere. fastest emerging economy.

Economic reform in 1978 (Shirk, 1993).

Corporate tax rate been consistent since 2009 staying at 25% (Trading Economics, 2016).

Current currency: China Yuan Renminbi.

high-context state.

Pollution in China is an alarming risk.

China population roughly 1.4bn (Worldometers, 2016).

Median age in China is 37.3 years (Worldometers, 2016).

(Statista, 2016).

Appendix D - PEST Analysis for United States of America

Political Economical Socio-cultural Technological Political state

unstable due to recent Presidential elections.

One of the world's leading state in terms of military and economic power.

As current as November 2016, U.S.A. has an unemployment rate of 4.6% (Trading Economics, 2016).

National debt has risen 505.37% from 1990 where the debt was at $3,233.31bn whereas in 2016, that value is now at $19,573.45 (Statista, 2016).

Current currency: United States Dollar.

American gun laws are currently a national issue with a big divide between the nation on whether or not they should outlaw the weapons.

The American population is thought to have same/similar cultural beliefs to the United Kingdom.

Leading innovators and researchers in space engineering.

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Appendix E - PEST Analysis for Germany

Political Economical Socio-cultural Technological Similarily to the

United Kingdom, the state is parliamentary.

Participating members of the United Nations, North Atlantic Treaty Organisation, G8, G20 and the Council of Europe.

Germany's unemployment rate currently stands at a healthy 4.1. (Trading Economics, 2016).

Fourth largest economy.

Social market economy.

Current currency: Euro.

Population is roughly 82m.

Life expectancy: 79 years.

Median age (males): 42.6.

Median age (females): 45.2.

Germans are known to place a value on quality rather than using discounted stores.

Citizens have a resilient regional pride.

Engineering distinction.

Automobile engineering.

71m residents in Germany consume internet usage, a staggering penetration rate of 88% of the population.

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