External Environment Analysis of Sainsbury’s: A PESTLE Approach
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1. Introduction: External Environment Analysis of Sainsbury’s: A PESTLE Approach
Environmental analysis is a major area of focus for companies in different sectors. It allows the business to identify barriers and opportunities in operating in a particular country. An organization may better prepare its business to meet the difficulties posed by external elements and their trends by doing an external environment study, in which it takes into account all relevant aspects and parties. From examining the external environment, not only may current circumstances be determined, but insights into potential outcomes and untapped openings can be gleaned as well. The present report demonstrates the background of Sainsbury's along with an external environment analysis of the organization. Furthermore, the reason for using pestle analysis is also depicted in the present task. An overview of the retail industry is also presented in the report.
1.1 Aim and objectives
The report aims to analyze and assess the external environment of Sainsbury’s in identifying the key drivers of the organization. In analyzing the external environment, the background of the organization and an external analysis has been illustrated which is considered to be an objective of the report. Demonstrating scenario planning is another objective of the report.
1.2 Defining of strategy
One definition of strategy is "the method by which a person or group achieves its goals." Definitions of corporate strategy tend to agree on many key points, including the need of allocating resources to carry out key strategic tasks and the implication of consistency, integration, or cohesion (Grant and Jordan, 2015).
1.3 Background of the company
Sainsbury's is a major British store that specializes in food as well as other products and services(Sainsburys, 2017). To guarantee they can continue to satisfy their consumers' needs for adaptable, hassle-free shopping, the firm has made significant investments in logistical expertise and capacity. The company has 34 warehouses for both Sainsbury's and Argos. The company offers over 90,000 products to its customers in different regions(Sainsburys, 2017).
1.4 Industry and sector
It's conceivable that people's spending habits will change fluctuate of the current cost of living problem. A survey of the retail industry suggests that consumers will be more frugal in their spending and would instead prioritize needs above wants (Mintel Store, 2023). Competition in the grocery store sector is expected to increase as a result of efforts that provide shoppers with greater value, which might prompt some to modify their shopping habits.
Figure 1: Annual retail sales of Sainsbury’s
It is projected that by 2022, supermarkets and other large-format businesses would account for around 46.5% of all food sales in the United Kingdom. The food retail industry in the United Kingdom will continue to show growth until 2027, increasing by 13.7% between 2022 and 2027 to reach £227.3 billion (Mintel Store, 2023).
2. External environment
For its effectiveness in identifying the elements that are likely to impact competitive circumstances within a sector, PESTLE analysis has gained popularity as an environmental analysis methodology for Sainsbury’s (Grant and Jordan, 2015). Applying the tool will help the company to identify opportunities and threats of business.
2.1 Macro environment
The term "macro environment" is used to describe the overall economic climate, as opposed to circumstances in a specific industry or geographic area. “Gross domestic product” (GDP), “inflation”, “employment”, “expenditure”, and “monetary and fiscal policy” tendencies are all part of the broader macro environment.
2.1.1 Pestle analysis framework
Marketers may use a PESTEL study as a framework or tool. In order to examine and filter the company's external marketing environment, they may utilize this tool. The macroenvironmental elements are evaluated via the strategic management tool. As a consequence, the outcomes facilitate better judgment. Political, Economical, Social, Technology, Legal, and Environmental are some of the factors of this tool.
2.1.2 Sainsbury’s pestle analysis
Political: There is a lot of stress on businesses and consumers in the UK because of the country's high debt levels (both public and private). Sainsbury's has a double whammy of operating in this market and maintaining a continuous commercial operation. The high debt levels of the UK may lead to threat for Sainsbury’s. However, due to the issues of Brexit the organization is unable to gather customers from EU countries.
Figure 2: Growth of Sainsbury in 2022
Economical: When the economy is in a slump, high inflation and a high unemployment rate are two of the major economic factors, both of which have a negative impact on Consumers (Natto et al., 2022). The impacts of Covid-19 have resulted in slowdown of economy among various industries in the UK. The inflation rate has also increased due to the pandemic. High food costs and widespread unemployment lead to a drop in food production, which in turn reduces demand for Sainsbury's goods. It is recommended that Sainsbury's expand their operations into developing economies. Increasing cost of food and unemployment is a threat for the company. Despite record grocery store sales during the pandemic, Sainsbury's reported a $261 million yearly loss as it spent millions of dollars on corona virus prevention measures. Sainsbury's earnings fall by 8% as inflationary pressures cause retailers to raise prices while trying to maintain low markups (Graham, 2020).
Social: Consumers in today's fast-paced world like stores that have everything a shopper would need. With the introduction of their non-food product line, Sainsbury's has reaped the majority of the benefits of this strategy. However, other societal issues, such as the increase of female majority in the employment, have led to a decline in the practice of preparing meals at home. As a result, there has been a dramatic shift in the pattern of demand for certain items (Nash, 2019). 'Cook and Save' is Sainsbury's marketing slogan, and it emphasizes the store's focus on affordable, quick-to-prepare meals. Customers may get more value out of their money thanks to these items. “Cook and Save” slogan is an opportunity as this may attract the attention of customer’s towards their product. Along with the slogan the organization also uses Twitter and Facebook as social media strategies in gathering customers for its business. Sainsbury's has hired Conversocial, an expert in social media crisis management, to help the company quickly spot any complaints from customers.
Technological: In addition to drastically reducing production costs, recent technological advancements in industry have also led to significant shifts (Grant and Jordan, 2015). Sainsbury's online food delivery service is rapidly growing. Annual figures from Sainsbury's corroborate that the company's dedication to improving its online offerings has directly contributed to a 25% year-over-year rise in revenue. Online food service is considered to be an opportunity for the company as this will allow the business to increase customer base. The company has also introduced AI and automation in its supply chain operations to enhance the efficiency and effectiveness of the operations. The organization has collaborated with Accenture and GCP in creating AI platforms for developing its supply chain operations.
Legal: Directly affecting the company's bottom line are laws and regulations enacted by lawmakers. Sainsbury's, for example, has changed its goods in light of the legislation that imposed a new tax on the advertising of fatty and highly processed meals (Graham, 2020). New tax regulations are a threat for the organization as this may lead to penalties and financial losses.
Ecological: The primary goal of every group should be to operate in a socially conscious way to preserve a healthy and secure ecosystem (Natto et al., 2022). Hence, Sainsbury's has established itself as a socially responsible business by instituting "Reduce, Reuse, and Recycle" policies that effectively manage trash, recyclables, and packaging. Using recyclable materials will allow the business to create a positive image among the customers (Whittington et al., 2019). In spite of the environmental impacts, the organization is using technologies for maximizing energy efficiency. The organization has also connected itself with food donation partners such as FareShare to reduce food waste in the external environment.
2.1.3 Criticism of Pestle
The Pestle has been considered in the task to identify, illustrate and analyze the factors that affect the operational environment and revenues of Sainsbury’s (Nash, 2019). Shortage and delay in delivery and sales of products is one of the faults of Sainsbury’s. All of the societal forces and variables that have an impact on the local environment are collectively referred to as the macro Environment. Organizational performances may be severely impacted by external variables that are beyond its control. One might classify these elements as political, economic, sociocultural, technological, legal, or environmental. It's a useful instrument for gauging both the existing state of things and the likelihood of future shifts (Nash, 2019). The idea behind it is that businesses that constantly monitor their surroundings have an edge in the marketplace because they can better collect, analyse, and put to use relevant data to boost their operations. Its primary use is in foreseeing and assessing potential future outcomes. Because of its focus on the external environment, it is often considered to be a component of the SWOT analysis process. The external assessment, appraisal, review, and evaluation include this, and it serves both political and public objectives. Stakeholders involved in the economy, society, law, and economy may be recognised and included in the final report.
2.1.4 Scenario planning
Technology is one of the key drivers of Sainsbury’s as it allows the business to efficiently and effectively operate in the retail industry. For the convenience of the customers, Sainsbury's installed self-service checkouts in all of the supermarket units. Customers can choose how they want to pay for their purchases, and those with smaller baskets can go through the checkout line much more quickly (Graham, 2020). It is true that Sainsbury's has had success with a variety of marketing approaches to growing and establishing its brand, but the strategy that has seen the greatest longevity is the company's dedication to omnichannel marketing. Therefore, it can be considered that omnichannel marketing is another key driver for the business (Whittington et al., 2019). Collaboration with tech companies such as Tata Consultancy Services is a key driver for Sainsbury’s as it allows the business to enhance and advance its technical operations in sustaining in the retail market.
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Conclusion
The external environment allows organizations in the retail industry to maintain their pace with the competitive market. It can be concluded that Sainsbury's analyzes the external environment while offering products to its customers in different regions. With this approach, the organization has been able to develop itself to be one of the leading supermarkets in the UK. It has been found that technology and omnichannel marketing are some of the key drivers of Sainsbury’s. To maintain the effectiveness of technical units the enterprise has also collaborated with several companies from the tech industry.
References
Graham, S., (2020). The influence of external and internal stakeholder pressures on the implementation of upstream environmental supply chain practices. Business & Society, 59(2), pp.351-383. Available at: https://journals.sagepub.com/doi/abs/10.1177/0007650317745636?journalCode=basa [Accessed: 23 Feb 2023]
Mintel Store. (2023). UK Supermarkets Market Report - Market Size & Forecast. [online] Available at: https://store.mintel.com/report/uk-supermarkets-market-report [Accessed 23 Feb. 2023].
Nash, J., (2019). Exploring how social media platforms influence fashion consumer decisions in the UK retail sector. Journal of Fashion Marketing and Management: An International Journal, 23(1), pp.82-103. Available at: [Accessed: 23 Feb 2023]
Natto, D. and Mokoaleli-Mokoteli, T., (2022), November. External Governance, Corporate Governance, Firm Performance and Economic Growth in the UK and India. In European Conference on Management Leadership and Governance (Vol. 18, No. 1, pp. 482-491). Avaiulable at: https://papers.academic-conferences.org/index.php/ecmlg/article/view/733 [Accessed: 23 Feb 2023]
Sainsburys (2017). Our business model How we create value and build customer loyalty. [online] www.about.sainsburys.co.uk. Available at: https://www.about.sainsburys.co.uk/~/media/Files/S/Sainsburys/pdf-downloads/sainsburys-ar-2017-business-model. [Accessed: 23 Feb 2023]
Whittington, R., Angwin, D., Regner, P., Johnson, G., Scholes, K. and Koleva, P., (2019). Exploring strategy, text and cases. Pearson Education. Available at: Exploring Strategy, Text and Cases — Coventry University [Accessed: 24 Feb 2023]
Grant, R.M. and Jordan, J.J., 2015. Foundations of strategy. John Wiley & Sons. Available at: Foundations of Strategy - Robert M. Grant, Judith J. Jordan - Google Books [Accessed 25 Feb 2023]
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