Business_Environment__Pestle_Analysis_–_J_Sainsbury_Plc

Business Environment: PESTLE Analysis – J Sainsbury plc J Sainsbury plc is one of the United Kingdom leading food retailers with interests in financial services, which consists of Sainsbury’s Supermarkets, Sainsbury’s Local, Bells Stores, Jacksons stores and JB Beaumont, Sainsbury’s Online and Sainsbury’s Bank with 153, 000 employees. The company serves over 16 million customers a week and at the end of the 31 March 2006, it had 752 stores through out the United Kingdom. A large Sainsbury’s Supermarket offers around 30,000 products and the company owns 50% of own brand. The J Sainsbury’s was founded in 1869 by John James and Mary Ann Sainsbury. The company had started from a small dairy shop at 173 Drury Lane, London and the place where the shop was first opened was one of London’s poorest areas. The shop managed to attract a lot of customers and became popular for offering high-quality products at low prices over the short period of time. In 1882, 13 years interval, John James Sainsbury owned four shops. He had so success in his business and he kept on expanding his business improving its product qualities and facilities. The Sainsbury was wholly owned by its founding family over the period of one century and had reached a scale and stature that warranted public status by the early 1970s. The company’s public flotation was the largest ever flotation on the Stock Exchange with a 45 times over-subscription for shares in 1973. Over the last century, the company might have direct or indirect influence of external factors and the impacts might have contributed towards the current or present shape that exist today. Uncertainty about the external environment tends to exist when factors affecting any organisation are complex and dynamic. The factors are known as PESTLE which stands for as below: • Political • Economics • Socio-cultural • Technological • Legal • Environmental Each factor does not stand alone. In some ways and some how these factors are inter-related. The PESTLE analysis is conducted for the company (J Sainsbury) as follows: Political During the world wars, a third of the workforce had left the company to join the armed forces. The company had to recruit new and untrained employees to fill the vacant and the new employees had to be trained. In this way, one of the factors had cost the company both money and time. Political changes may have direct impact on the company. The company may be influenced by GM food issue, food miles issue, policy on sale of alcohol to people over the age of 21 and smoking ban policy. Food miles are the measure of the distance a food travels from field to plate (Food miles Hattie Ellis). Agriculture and food nearly 30 % of goods transported on roads which adds substantially to the carbon dioxide emissions contributing to the global warming. 95% of the fruit and 50% of the vegetables in the United Kingdom are imported from other countries. There are a number of initiatives to improve and grow local food in the United Kingdom to get local food into local schools, hospitals and shops. The government has aimed to reduce the environmental and social costs of food transport by 20% by 2012. This decision will put direct or indirect impact on the company. Economics After the 11 September and various terrorist activity since then have contributed direct or indirect negative and vice versa influences on this aspect. A simple example is new jobs in security field are introduced and a quite lot of people are recruited. Normally people get job, they get money and spend on food or on basic needs. Government decision on putting a tax on food would also influence the company’s state. British membership of the European Union can also have direct impact on the company. The European Union was known as European Economic Community which was set up in 1958 consisting of sex member countries. Now there are 27 countries in the European Union. The Union’s main aim is to establish common market which allows free trade between members’ countries and establish a common external tariff on imports of goods and services from other countries. There are both advantages and disadvantages for the company for being the Britain a member of the European Union. Advantages: • The company have free access to EU markets from the where it wants to operate. • The company can buy cheaper land any where in the EU and employ the skilled staff from any EU country. • The bigger the market the greater the product sales. • There will control of the ill-competition among the competitors especially in the products price. Disadvantages: • The company could buy products or services at the lowest price from the common wealth countries or around the worlds before joining the EU. After joining the EU the British firm has to pay a quite high price because of the common external tariff. • Because of the common market policy, market share reduces or may reduce. • Same product produced in the United Kingdom will not be popular or suitable in other country. Socio-cultural The changes in society itself have an effect on the company. For example, settling down of ethnic minority is increasing in the United Kingdom. Since the British government announcement in 2004, Gurkhas (British-Gurkha soldiers from Nepal) are also no more in exception from settling down in the United Kingdom. Most of them have, for instance, settled down at Ashford area in Kent. If the company tries to adapt to the different shopping patterns in accordance with the consumers needs, the shop can attract more customers. People are becoming more health conscious. Therefore there is growing public concern over the ingredients in products, so their attitudes towards food are constantly changing. Any company that is unable to keep track of these changing attitudes will fall away. In Japan, for example, fallen birth rate has had a major impact on the sales of toys. Technological Technological factors directly impact the way company operates. Internet shopping is one of these factors that a lot of UK based customers enjoy. If the same facility is expanded to overseas or BFPO (British Forces Post Office) based customer, both parties, the company and consumers, can have benefit from the service. Legal There was a mad caw disease which has a long term impact. There was also an issue of bird flue in other continents. Those sorts of factors can lead the company to large amount of compensation claims pay out. As the most of the products are imported to the United Kingdom, the company is to take into account that how and who prepare and send the product to the United Kingdom. For example, there was a global issue about child labour in Ivory-coast for forcing children to work in coca plantation rather than sending to school. In developing countries, people are being educated and people of developed countries are also starting to realise that people are to be forced to work not exceeding the legal limitation. In 10 to 15 years, there might be some shortage of products due to the shortage of workers. The company is to consider that how the situation can be exploited. Environmental Global warming has been one of the biggest issues. For example, if third world countries can not grow enough sugar can or tea then its direct effect will be shortage of sugar or tea bag in the shop. The company will be unable to meet the existing market demand, creating a strong opportunity for its competitors. On the other hand, if company is found to be harming the environment then heavy penalties can be awarded and it might also affect the company’s reputation. In this way not only the J Sainsbury’s but others as well have direct or indirect influence of the external environmental factors. Membership of the EU allows the UK and European supermarket chains grow into Central Europe. The company where it chooses to be operated in will have to face the competition with its local rival in higher degree. A few countries including the UK seem to be reluctant to join the Single European Currency which can also be seen as a major external factor as it has a direct effect on trade, investment, exchange and interest rates. Single currency would save the exchange rate and help to boost the trade in wider Euro market which would provide more freedom for both seller and consumers with greater choices. The company would have to check the price and bring it down in line with the other firms’ prices, since the UK has generally higher prices comparing to the rest of the European Union. Joining the Single European Currency would have direct impact on interest rates. Normally, UK borrowers would have benefit but lenders would lose as the rates fall. The Single European Currency would break the barrier of the currency exchange and serve as a bridge to one of the biggest trade market where people do not have to pay different prices for the same items. On the other hand, the EMU membership for the UK would enhance productivity by increasing trade flows between the UK and other European nations. It would also increase investment and force the company for competition for better in the product markets. Although there would be a lot of economic advantages to joining the Single European Currency, there would be a few disadvantages attached, too. Introduction of the new currency would cost the company quite a lot of price, as the company would have to change the whole system associated with the UK currency. For example, the company would have to change the existing cash dispensing machines, accounting systems, etc. The company, J Sainsbury, had set some targets to achieve in 3 years and its achievement in two years can be found in the table below which was extracted from its website (http://www.j-sainsbury.com/ar07/businessreview). The targets set to achieve in 3 years Progress in 2 years To grow sales (inc VAT ex fuel) by £2.5 billion, with grocery contributing sales of £1.4 billion, non-food products sales of £700 million and convenience stores sales of £400 million To invest at least £400 million in improving product quality and price position relative to competitors and to find annual buying synergies of 100-150 basis points to be reinvested in the customer offer To deliver operating cost efficiencies of at least £400 million Grew sales (inc VAT ex fuel) by over £1 billion, taking our total sales growth over the past two years of the recovery plan to £1.8 billion and ahead of plan The £400 million of investment in the customer offer was completed by December 2006 and additional funds were invested in early 2007, improving product quality and giving the most competitive price position for many years Increased the cost savings target to £440 million following in sourcing of IT. The table suggests that it has been very successful to achieve the set target. If the UK joins the Single European Currency then the companies’ product sell would not drop but it would cost the company quite a big amount of money for further another decade from the date when the Single Currency would be in an effect. The money would be spent on renovation or completely changing of the existing system connected to UK currency system. The company would also have to cut its products’ prices. It might also have to face greater competition in other nations of the Euro and some money would have to be spent on advertisement. Although the company would have to spend quite lots of money at the early stage, it would enjoy increased prosperity and stable economy resulted from the enhancement of the trade. (words: 1952) Bibliography: Dave Hall, rob Jones, Carlo Raffo, Ian Chambers and Dave Gray, business Studies, 3rd Edition (2005), Causeway Press Ltd. Gerry Johnson, Kevan Scholes, Richaard Whittington, Exploring Corporate Stratege Tex and Cases, 7th Edition (2006), Prentice Hall. Ian Worthington & Chris Britton, The Business Environment, 3rd Edition (2000), Prentice Hall. http://www.j-sainsbury.com/ar07/businessreview (Accessed 15 April 08)