Entrepreneurship and Business Plan: A Case Study of Sainsbury
Sainsbury plc was established by John James Sainsbury in 1869 in London. The company was initially established as a grocery retailer. The company has grown by a considerable extent through innovative business practices and marketing strategies. Currently, Sainsbury is the third largest retailer in UK in terms of market share. At present, Sainsbury has 161,000 employees and operates more than 1,200 supermarkets.
The mission of Sainsbury plc is to become the consumers’ first choice for food through offering high quality of food items and excellent customer service at a reasonable cost by working simpler, faster, and together.
The vision of Sainsbury is to be the most trusted retailer where people enjoy to shop and work.
The daily business decision making process and all business activities of Sainsbury plc are guided by the core values identified by the company. Sainsbury’s values are integral to its relationship with all relevant stakeholders like employees, investors, and suppliers. The major values of Sainsbury are presented below:
- Best food and health
- Sourcing raw materials with integrity
- Ensuring environmental sustainability
- Making positive contribution to the society
- Offering best work environment and growth opportunities to employees
- Ensuring consistent growth to investors
2.1 Business objectives:
Sainsbury is currently focused on entering into ready food market of UK. The company aims to take the advantage of the growing retail sector in UK.
The company would open 10 new restaurants in UK which would enhance the total gross sales and profitability of the company. The competitive advantage and market share of the company is also expected to increase. The company aims to achieve a net profit of €150,000 by next one year.
The performance of the proposed investment project would be measured in terms of sales revenues, profit margin, number of new customer addition, and return on investment. In this context, Birkinshaw et al. (2009) mentioned that measurability of business objectives is crucial to performance evaluation and management control. The key performance indicators for the chosen project are:
- Sales revenues
- Gross profit margin
- Net profit margin
- Quantum of new customers
- Percentage of repeat sales
- Return on Investment (ROI)
- Assets-Turnover ratio
The chosen business objectives can be considered as highly attainable because of strong brand image of Sainsbury, strong distribution network, advanced production technologies, and highly competitive organisational resources and intellectual capital.
Sainsbury plc has a target net profit margin of €150,000. This seems to be quite realistic in nature because of the high growth rate observed in the UK retail industry.
The company has set an initial time-frame of 1 year for achieving a net profit of £800,000 from the new project. However, the company is focused on the long-term growth and sustainability of the new chain of restaurants.
The business operation of Sainsbury is highly affected by the political conditions of UK as the company is headquartered at London, UK. At present, the quantum of both consumer and government debts are high in UK which has a negative impact on consumer buying behaviour and fiscal and monetary policy of the UK government. However, UK has a stable government and that the maximum corporate tax rate has recently been reduced to 21% whereas the minimum corporate tax rate is fixed at 20%.
The economical condition of a country is a major factor that affects the business results of a retailing company (Griffith, 2012). The economic condition of UK seems to be major concern for Sainsbury due to high inflation rate, high unemployment rate, and economic downturn due to the recent global financial crisis. These factors reduce the buying capacity of the consumers which in turn has an adverse impact on the sales revenues of Sainsbury. As mentioned by Cheng (2011), decrease in consumer demand increases the cost of production to a firm. Therefore, reduced demand for Sainsbury’s products might indirectly result in increased selling price in future.
A large proportion of UK consumers are inclining towards online shopping (Katsikeas et al. 2008). In addition, UK consumers prefer brands that offer both food and non-food items as this offers one-stop buying solution to the customers. Sainsbury has recently launched its non-food products which would surely benefit the company by increasing its sales revenues and customer base. As mentioned by Kustin (2006), rising female workforce and greater longevity of people has a positive impact on the sales revenues of UK based retailing companies. There has been a decline in the home meal-making among UK customers. This trend is expected to increase demand for food items of Sainsbury plc. ‘Cook and save’ is one of the latest marketing themes of Sainsbury plc which offers easy to cook food products to the customers to save both cost and time.
There has been a significant rise in online shopping in UK. In fact, online retailing can be considered as one of the greatest marketing opportunities in UK at present. As mentioned by Ryans et al. (2010), online retailing reduces the total cost of sales of retailing firms. However, Sainsbury needs to spend a considerable amount of money towards the development of web-based retail operations. The online food delivery service of Sainsbury is increasing at a faster rate. Sainsbury has a well established inventory management system. Sainsbury has a policy to continuously upgrade existing technologies to derive the benefits of advanced technologies. Computerised stock controlling system, self checkouts, and scanning check-outs are some of the technological advancement made by Sainsbury plc.
The corporate governance policy of Sainsbury provides strict guideline in respect of adhering to legal norms. Hence, the company has been consistent in respect of statutory compliances. Sainsbury plc has shown proper compliance to the discrimination and fair treatment legislation, national minimum wage policy, and alcohol selling age law. The company recognises the importance of complying with these legislations. In addition, Sainsbury plc is also required to comply with consumer laws, environmental laws, competition laws, health and safety laws, and employment laws as set and modified by the government from time to time.
The environment is affected both directly and indirectly by the business operations of an organisation. Corporate social responsibility has become one of the most vital areas in corporate governance. In this context, Lages et al. (2012) viewed that business organisations need to ensure clarity and transparency in social and environmental reporting to ensure proper corporate social responsibility. Sainsbury plc is known for ethical business practices in UK. Sainsbury plc has introduced ‘Reduce, reuse, recycle’ approach for effective management of packaging, industrial wastage, and recycling.
The key strengths of Sainsbury are mentioned below:
- A skilled and experienced workforce of 161,000 employees
- Wide product range consisting of more than 30,000 of products
- Strong brand image
- Strong quality assurance and internal control system
- Strong financial position
The key weaknesses of Sainsbury are mentioned below:
- Lack of adequate expansion plan
- Frequent technical issues related to online shopping platform
- Liquidity issues
The degree of competition in UK market is rising due to promising opportunities in the retail industry of UK (Theodosiou and Katsikeas, 2006). Sainsbury plc is currently facing a stiff competition from other retailing companies in UK. The major competitors for Sainsbury plc are Morrison’s, Tesco, and Asda. These competitors have distinct competitive advantage over each other and each of these competitors has high market share and big chain of super markets. However, the barrier to new entrants in the UK retail industry is considerably high due to the requirement of huge capital and presence of large number of companies in the industry.
Sainsbury plc would mainly target the working professionals and college students. These customer segments have little time to spend on lunch, dinner, or snacks. These customers do not like to wait long for having lunch, dinner or snacks.
In the view of Tihanyi (2009), effective differentiation is a vital source to sustainable competitive advantage. UK retail industry is growing at a rapid rate but there has been a significant rise in the number of new entrants in the industry. Hence, Sainsbury plc needs to ensure that the products and services offered by the company are different from that of the competitors. In this context, Wagner (2006) observed that proper identification of the inadequacies in the product and services offered by competitors enhances the degree of differentiation.
In present context, free home-delivery services and ready food products at the cheapest possible price would create a considerable degree of differentiation against the products offered by competitors. Sainsbury plc would offer food items at the lowest possible time and costs. In addition, Sainsbury plc would manufacture certain food products that can be consumed by diabetic and cardiac patients. Currently, the leading ready-food retailers like Dominos, McDonald’s, and Pizza Hut offers variety of ready food items but no special food products are offered by these firms to suit the requirements of diabetic and cardiac patients. Hence, the key differentiation points in respect of the new business plan of Sainsbury can be summarised as under:
- Ready food items to meet the requirement of busy people
- Quality food items at the cheapest possible price
- Quality food items at the lowest possible time
- Free-home delivery service on any order amount
- Special food products for diabetic and cardiac patients
- Long operational hour
Sainsbury plc would enjoy certain competitive advantage over the rivals because of its already established strong brand image. As mentioned by Spanyi (2010), competitive advantage of a firm can be considered as effective if it is least exposed to the risk of imitation by competitors. The key sources of competitive advantage for Sainsbury are discussed below:
Strong brand image:
Brand image or reputation is one of the vital factors that determine the success of a new product in the market (Hicks, 2012). Sainsbury plc is a well-known name among the people of UK. The company is known for its ethical practices and high quality products. Hence, it would not be wrong to expect that attracting new customer towards the new products would be easier for Sainsbury plc.
Ready food products at lower time and cost:
In UK, busy people often do not have sufficient time to complete lunch or dinner at a restaurant. Therefore, ready food items would be of great demand for working professionals. As mentioned by Marquardt and Wiedman (2010), cost is a crucial factor that affects the buying decision of customers as it has a negative impact on the savings of customers. However, Sainsbury has decided to offer food products at the cheapest possible price and this can be considered as another source of competitive advantage for Sainsbury plc.
It is hard to think of fast food items for diabetic and cardiac patients. However, food products specially manufactured for diabetic and cardiac patients would surely enhance the sales revenues of Sainsbury because the percentages of diabetic and cardiac patients are increasing at an alarming rate in UK.
Strong financial position:
Sainsbury plc is a financially strong organisation with strong liquidity position. The company has a large amount of financial assets at its disposal. This would help Sainsbury plc in the implementation of the new business plan. In this context, Vorhies and Morgan (2008) mentioned that the inadequate financial resources are often a barrier to the success of a project.
Sainsbury plc has a highly competent workforce of 161,000 employees. This would help the company in its business operations related to the launch of new chain of restaurants. Sainsbury plc can transfer some of its existing employees to the new departments. Thus, the company can save on recruitment costs and time. In addition, existing employees are also accustomed with the organisational culture of Sainsbury plc.
Efficient logistics system and strong distribution network:
Sainsbury plc has a well-established distribution network across UK. The logistics system of the company is also highly efficient in respect of major logistics functions like procurement, production, packaging, warehousing, and distribution. Therefore, the company can use its existing logistics capacity to meet the distribution and transportation requirement related to the new business project.
Marketing mix refers to a set of basic marketing elements that are crucial to the success of the marketing strategy of an organisation. The basic elements of marketing mix are product, price, promotion, and place. In this context, Kustin (2010) mentioned that the principle objective of marketing mix is to put the right product at the right place, at the right time, at the right price. The key elements of marketing mix are discussed below:
Product is the most vital element of marketing mix as it is directly associated with customer satisfaction. This element is concerned with the physical features and attributes associated with a product. As mentioned by Conroy (2007), the main goal of a product is to bridge the gap between expected satisfaction and derived satisfaction of the customers. Hence, it becomes essential to identify the actual needs of the customers which in turn would help in the development of appropriate products. Sainsbury plc conducts periodic scanning of the market which also includes an evaluation of customer feedback. This market research is aimed at proper identification of customer needs. In addition, Sainsbury plc invests considerable money towards research and development to add new features in existing product and service offering.
Sainsbury plc would offer only ready food items under the proposed business plan. The company would ensure that the food products are both tasty and healthy. In addition, saving valuable time and cost has been chosen as the main sales-promotion motto.
Price is one of the most powerful factor that influences consumer buying behaviour. In general customers look for products and services that are offered at cheaper price. As mentioned by Peel and O’Donnell (2009), effective pricing policy needs to ensure that a firm does not loose on both potential customers and potential profits. Put it differently, every product has a standard selling price. If the selling price of a product is higher than the standard selling price then the firm might lose on potential customers whereas if the selling price of a product is lower than the standard selling price then the firm might loose on potential profits that could have been earned by selling the products at the standard selling price. Currently, the degree of competition in the UK retail industry is considerably high. Products offered by major players in the ready-food industry are almost similar. Hence, price differentiation becomes inevitable. Sainsbury plc offers its existing products and services to the customers at competitive selling prices as a part of its marketing strategy (Olhager, 2012).
The ready-food products under the new business plan would also be offered at a cheaper price compared to existing market leaders in the industry. The strategy is aimed to attract new customers and increase market share at a fast rate.
Promotion and advertising:
It is difficult for a firm to succeed in modern business world without effective advertising. Advertising and sales-promotional efforts are aimed at creating customer awareness (Makadok and Barney, 2007). However, it is essential to select appropriate advertising medium before investing in advertising activities. Customer segment, industry type, product type, financial resources, and location are the key factors that are needed to be considered for the selection of most suitable advertising medium. In this context, Nicholson and Kiel (2011) expressed that social media has emerged as one of the popular advertising medias due to its ability to reach large customer base at a faster rate. In addition, advertising through social media is cost effective. Sainsbury plc has recognised the importance of social media as an effective advertising tool. Currently, the products and services of Sainsbury plc are advertised through social media, magazines, and televisions. However, the company would advertise its new ready-food items through local news papers, hoardings, social networking sites, and radio stations.
Placement – distribution system:
In spite of high product quality, reasonable pricing, and advertising efforts products often fail in the market due to improper selection of the place of business. This is more evident in retail industry and more particularly in retail food industry as the products are directly sold to the retail customers. In this context, Youngdahl et al. (2010) viewed that busy locations are most suitable for retail outlets. Busy locations increases chances of greater sales volumes due to the presence of high population in the area. Sainsbury plc operates over 1200 super markets which are located at busy places. In present context, Sainsbury plc would also select the most crowded or busiest locations for its ready-food restaurants.
The principle sales strategy of Sainsbury plc in respect of the ready-food restaurants would be to capture a considerable market share by offering quality food-products at the lowest possible price. The company would also offer cash discounts on specific food-products. As mentioned by Omar (2009), cash discounts benefit an organisation through increased sales volumes. In addition, the company would also offer free home-delivery service to its customers within local area.
The monthly sales forecast of Sainsbury plc is presented below:
|Non-veg combo meal||25,000||27,000||28,000|
|Veg combo meal||15,000||18,000||20,000|
|Non-veg combo meal||2.5||2.5||2.5|
|Veg combo meal||1.75||1.75||1.75|
|Non-veg combo meal||62,500||67,500||70,000|
|Veg combo meal||26,250||31,500||35,000|
|Annual sales revenues||239,750||262,500||279,250|
Operation is the heart of any business enterprise. Hence, one of the most priorities for the management of a firm is to ensure smooth and uninterrupted flow of business operations. In this context, Stank et al. (2008) stated that the efficiency of the business operation of a firm determines its competitive advantage. The principle aim of operational strategy is to meet customer demand on time.
The key business processes of Sainsbury plc in respect of the new business plan are discussed below:
Import refers to the procurement of raw materials, spare parts, accessories, and others from outside the home location of a firm. Companies often import input materials from outside if the same ensures lower costs or better quality compared to the materials offered by local suppliers (Shepherd and Gunter, 2010). However, Sainsbury would not indulge in any import activity in respect of its current business plan. The company would procure all input materials and ingredients from local suppliers only because of the perishable nature of the food items.
In the view of Min and Mentzer (2006), ensuring right input materials at the right time at the right place and at the right price are the key objectives of a purchasing policy. Sainsbury plc would follow a decentralised purchasing policy in respect of the current business plan of ready-food restaurants. This would reduce the transportation costs involved in sending the raw materials and ingredients from head-office to the restaurants under centralised purchasing system. In contrast, Mentzer et al. (2009) mentioned that centralised purchasing system allows firms to obtain both trade and cash discounts in respect of purchases.
A company can follow a centralised or decentralised approach for the production of ready-food products like pizza, burgers, and others. In case of centralised production facility, food items for all the restaurants are produced at a central production facility from where the finished products are despatched to the concerned restaurants. In this context, Mathuva (2010) expressed that the production cost associated with centralised production facility are lower compared to decentralised production facility. However, transportation cost becomes a regular concern for the company. In contrast, restaurant companies can also follow decentralised approach in which ready-food items can be produced at each restaurant based on customer demand. This would also ensure that the food items are more fresh and hot.
Sainsbury plc believes in extensive marketing of its products. However, the company needs to understand the implications of the advertising costs on the new chain of restaurants as the business would be a new one. Greater advertising costs might reduce the profitability of the firm as the company intends to sell its products at a lower price. Therefore, Sainsbury plc can advertise its products through hoardings and social media to save on advertising expenses.
Sales are the direct revenues to a business enterprise. In this context, Birkinshaw et al. (2008) observed that greater is the proportion of cash sales better is the liquidity position of a firm. In present scenario, all sales of Sainsbury plc from the ready-food restaurants would be on cash basis as the products would be sold directly to retail customers. In addition, the company would also allow its customers to place orders through online shopping platform.
In the view of Rieley and Clarkson (2012), perishable nature of items increases the importance of warehousing facility. The nature of the raw materials and food products to be sold under the new business plan by Sainsbury plc are highly perishable in nature. The company needs to ensure proper refrigeration system and appropriate room temperature to store its products. The stock of goods is also needed to be protected from pilferage. In addition, Sainsbury plc would insure its products, machineries, equipments, and warehouses.
The company would follow a decentralised accounting system in respect of the new business plan of ready-food restaurants. Sainsbury plc would employ accountants for each of its restaurant to take care of the daily cash flows and other accounting activities. Adherence to IFRS is a principle objective of financial reporting and accounting functions of a firm (Patel, 2011).
In the view of Mallin (2012), profitability, competitive advantage, and long-term sustainability of a firm depend on the efficiency of the workforce of an organisation. Sainsbury plc would ensure that highly skilled candidate with relevant experiences are placed at the restaurants. In addition, the company would also ensure the availability of adequate staffs for its restaurants.
Organisational structure, employees, and external associates are the vital elements of the management of a company. Each of these elements in respect of Sainsbury plc is discussed below:
Sainsbury plc follows a hierarchical organisational structure due to the presence of various layers of people and control levels. However, Chapman (2006) mentioned that hierarchical organisational structure increases the time required in operational activities. In Sainsbury plc, each level is managed and controlled by the next higher level. Therefore, each department is required to report to the next higher level. Line managers are responsible for the performance of respective departments. As regard to the new business plan, Sainsbury plc would also follow a hierarchical organisational structure in which chiefs, waiters, and accountants of a particular restaurant would be reporting to the restaurant manager whereas the restaurant managers would be reporting to the local business head of Sainsbury plc.
Sainsbury plc recognises the importance of human capital in the success of its business. Hence, the company would provide all relevant financial and non-financial benefits to its employees as a part of its motivational strategy. As regard to the external associates, the company would ensure timely payment of invoices and focus on long-term relationship with these associates.
|General and Administrative expenses (€)|
|Office salaries and contributions||20,000.00||20,500.00||28,000.00|
|Subscriptions and donations||300.00||300.00||300.00|
|Electricity and water||450.00||450.00||550.00|
|Printings and stationeries||250.00||250.00||250.00|
|Repairs and renewals||100.00||50.00||150.00|
|Taxes and rates||60.00||70.00||80.00|
|Green dot (recycling fees)||50.00||55.00||50.00|
|Total administration and operation expenses||84,525.00||84,910.00||92,870.00|
|Percentage over sales||35.26||32.35||33.26|
|Salaries and social insurance and commissions||5,000.00||5,500.00||6,000.00|
|Motor car expenses||12,000.00||14,000.00||15,000.00|
|Total selling expenses||31,100.00||31,600.00||31,100.00|
|Bank loan fees||1,000.00||–||–|
|Total Financial expenses||3,500.00||2,500.00||2,600.00|
|Cost of goods sold|
|Less: Closing stock||5,000.00||3,000.00||6,000.00|
|Cost of goods sold||25,000.00||32,000.00||22,000.00|
5.5 Operating profit
Cost of goods sold
Operational and administration expenses
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