Sainsbury's business model and retail operations

¶ … difficulties with marketing varies from organization to organization and the first matter to learn when dealing with the marketing of any organization is to understand the nature of functioning of the organization and then decide on the methods of marketing that will be applicable.

Present position

Let us hear from Sainsbury's as to what they are: "We're a leading UK food retailer with interests in financial services. J Sainsbury plc consists of Sainsbury's Supermarkets, Sainsbury's Local, Bells Stores, Jackson's Stores and JB Beaumont, Sainsbury's to you and Sainsbury's Bank. Sainsbury's stands for great products at fair prices and our objective is simple; to serve customers well." (J Sainsbury Plc) The Company has been having difficulties with managing its supply chain and the present individual in-charge is Lawrence Christensen as supply chain director. He had joined Sainsbury's in September 2004 for a fixed period of 16 months and has now been asked to continue till the end of December 2006. He will now be in an advisory capacity and a new person has been appointed -- Roger Burnley. (J Sainsbury Plc announces management change)

Roger Burnley will be the supply chain director in the operating board of the company and this will be in place of Lawrence Christensen. His starting date has not been confirmed, and he is now working in Matalan where he is now the supply chain director. Earlier he was in retail management and buying before joining Asda or Wal-Mart and in that organization also held a number of positions before he became the supply chains director. So far as Sainsbury are concerned, they are happy that they have got a new supply chains director who will be able to add value and were also very grateful to Lawrence Christensen who had made a great contribution to their supply chain services and customer services. They are also happy that he has agreed to stay on and continue providing his services. (J Sainsbury Plc announces management change) Thus it is clear that the company has some difficulty in the supply chain services area though the organization has had an existence for quite some time.

Previous Performance

Let us go a little further and try to find out how the company has really been performing. We are specifically concerned with retail marketing here and this has to be selected carefully from the results of the company that are available. Part of the information is available from dividends paid and this had been rising continuously from 12.10p in 1995-96 to 15.69p during 2003-04 and has come down sharply to 7.80p during 2003-04. No investor likes to get reduced dividends and this was certainly due to compulsion. The compulsion becomes obvious when one looks at the profitability. This was at 462 million pounds in 2001 and went up to a figure of 572 million pounds in 2003. This was more or less at the same level or 564 million pounds during 2004. Even worse than this, the company was getting a sizeable amount of profit of 153 million pounds from discontinued operations. This has also been lying at almost the same level and was 145 million pounds in 2004. Thus it is clear that the profitability of the company was probably not increasing at fast enough rates for satisfying the shareholders. There have also been sharp increases in the interest paid from 76 million pounds in 2001 to 92 million pounds in 2005. (Company Profile)

Thus it seems that the company's shareholders are not seeing that the company is performing well enough and this is leading to problems for the company. The company has been recruiting and training young individuals for the line functions and it does not seem that there is a problem there, as they can only follow the decisions that are made by the top management. Thus the problems are with the top management and that is also clear from the earlier paragraph. Another important point to note is the organization from which the new director for supply chains is coming. It should be remembered that Wal-Mart has succeeded in practically wiping out many of the giants in the American retailing scene.

Reasons for success

Now let us look into the various reasons that affect marketing of products, though what we are talking here is about retail sales only as that is the job Sainsbury's is really involved in. They are not marketing companies selling a range of products that are manufactured by them or marketed by them from another manufacturer. In short, it is really doing a part of the marketing exercise -- selling to the customer. The most important point in selling any product is convincing the buyer that the product being offered by you is the best product that he can buy. In any free market, he has the choice to buy products from any other retailer and he will come to you if he thinks that your services are superior to others. To achieve this, the person presenting the product has to be very presentable and the manner of presentation very likeable. If at any instance the presenter is shy or anti-social, for whatever the reason, then the customer is not likely to purchase the product. The opposite is also true and if a seller tries to sell the product too hard, then the buyer will not like to come to the seller for buying the product. (Five Key Concepts)

All contacts with the seller will be avoided as the contact with the seller is unpleasant. Thus the point to be remembered is that the buying experience should be pleasurable. The correct technique is to get to the point of sale slowly and try to point out the advantages of the product without trying to convince the potential buyer the need for buying the product. Thus the seller should always be on the look out for opportunities for selling the product and the seller should not loose any opportunity when a potential sale is likely. This may take place even outside the place of work at picnics, trade shows, wedding receptions, etc. The sale will not be direct as Sainsbury's is not there, but the advantage of buying from Sainsbury's can be explained and an attempt can be made to get the person to Sainsbury for purchases. This is not very difficult for the organization as they have a lot of staff to do their selling. To make sure that the directed person comes to Sainsbury's a large supply of visiting cards should be provided so that the person knows where to come. These visiting cards should be in good condition as cards in poor condition reflect on the seller and his organization.

Appearances

This brings us to the question of appearances. Image of the organization is not the total picture, but it shows a difference between an organization doing well and an organization just trying to exist. All sellers are judged by their appearances and a good appearance can make the difference between the seller being able to make a sale or not being able to sell. This comes not only from individuals but also from ill designed brochures, poor logos, bad setting up of special sale units, poorly designed visiting cards, a garbled message from answering machines and many other ways. All these total up to create an image of the organization. (Five Key Concepts)

One of the ways of getting out of a situation of this nature is through enthusiasm and this is often transparent to all buyers. Even when the customer is not very confident of the product or its benefits, if the seller is enthusiastic, then the buyer will buy if for no other reason than to encourage the seller to continue. This enthusiasm is perceptible in contacts face-to-face, over the telephone or even when it is printed out. The requirement for this is for the seller and the selling organization themselves to first believe in it. This is what will convince the buyer to buy. Enthusiasm does not exist for all products among the salesmen, but it is a matter to be cultivated by sales individuals.

The last item on the line that organizations can concentrate on is the intangible rewards that any buyer gets from making a purchase. This is the point that has to be concentrated in all communications to the buyer. The message should concentrate on the benefits that the product offers rather than concentrating on the product itself. Generally this ends up in attracting more customers for the product and as a result gets a higher rate of response from the customers. The product and service are important points for the customer, but the buyer buys for the benefits, the pleasure, the convenience, the speed, and the enjoyment, the approval of others, the comfort level, the safety, the security or sheer enjoyment of the product. This is often the decisive factor that makes a customer buy a product. (Five Key Concepts)

Customer Relations

The next question is how to get a favorable impression in the customer when he enters the store. One of the best methods found today through research has been to create a good impression on the customer through merchandizing the items. The definition of merchandizing used her is the promotion of the product be developing strategies for packaging and displaying it. Good merchandizing can help in the increase of traffic, increase repeat business, increase the number of customers who make repeat purchases and increase the size of purchases that take place. All of these lead to an increase in sales. The concept of merchandizing inside stores is not any more putting the products correctly at retail but organizing the last three feet of approach with a comprehensive and integrated marketing plan. This is of crucial importance for leveraging of brands and this method directly tells the consumer what to do when the consumer has to spend money, buy the product and be satisfied at the retail outlet. (POP -- The Customer Insight)

There was a consumer outlook study in India which established that 75% of the customers look at attractive displays within a retail outlet. Another study was done in India to find out the importance of Point of Purchase along with displays for the decisions taken by consumers. The study was carried out on 436 consumers in Delhi and that included 264 consumers who were interviewed as soon as they came out of the shop. The distribution of the consumers was all over the city as 28 shops in 13 markets were chosen. Since the purpose of the study was to judge the impact of product displays, it was ensured that each shop had at least two product displays and three different types of POP material displayed at the time of the study. The study among the balance of 172 customers was done in residential areas that were close to the 13 markets. For the study a structured questionnaire was used for these surveys.

From the study it was seen that price is the most important influencer. Another important factor is the retailer push, but the price has double the effectiveness. Regarding the importance of brand names, it was seen that products under schemes fared almost as well as renowned brand names. What this means is that even a new brand can sell well, if it is backed up good schemes and low prices. It was also seen that retailer incentives did not matter much in getting sales. The importance of displays was more than dealer suggestions, and thus when sales are not doing well; it may be useful to get into displays. The interesting fact is that most respondents do not remember having seen displays and the number was less than 3.5% of the persons surveyed. This happened even though they were asked immediately after coming out of the shop. At the same time, a much larger number remembered that they had seen a display in the shop -- 35.2% of the respondents. This shows that the display may not be remembered so well, but it has an effect. (POP -- The Customer Insight) In the case of large chains like Sainsbury's it may be worthwhile to think of promoting their own brands through good POP and schemes as these brands must have been there for quite some time.

Sales Strategies

Carrying on with this concept, it is also possible to combine a few products into a Special Combination Package which can be made available at a price than the cost of individual items. This may be promoted as a special offer available for a limited time. Ultimately, the scheme will expire and then it can be replaced with another such scheme. In each scheme different products may be offered, and the effect is expected to make hesitant customers buy the packages. The total sales should increase. When the total sales increase, it is expected to increase the margins that are made available from the unit. It may also be possible to develop some three or four such packages and rotate them throughout the year and this can help some offer or the other going on at any time in the year. (3 Simple marketing Strategies) The importance of the offers can be made to increase in the minds of consumers by offering them at times when the general sales trend increases. This will ensure that the customers are likely to come to Sainsbury's when their purchases are the highest and thus more of their purchases will come irrespective of the offer due to simple lethargy of shifting to another shop.

There is another area of increasing profits for a retailer chain and that is from the manufacturers, and this is the area from where major competition Wal-Mart tries to ensure its dominance over competition. It is known that Retail supermarkets do not often pay fixed fees to the manufacturers and whatever they pay are not related to the profits they make. On the other hand, the manufacturers are compelled to pay fees to the retailers under the name of slotting allowances. Why does this happen? There are many manufacturers in the market and the retailer has a power through his being able to guarantee a certain quantity of sale, and the fees can always be even lowered further by threats to buy from another manufacturer. It has already been said that brand names are not as important. This view of importance of retailers is also in line with the fact that they have been able to force down the wholesale margins to a bare minimum. (Vertical Contracts between Manufacturers and Retailers: Inference with Limited Data -- The Case of Yogurt)

It has been suggested by the authorities of marketing that the powers of the retailer, in comparison to the manufacturer has increased and this is now different from the original theory that existed of the need for the three levels of manufacturer, wholesalers and retailers. One of the main reasons for this is that private labels have started to compete directly with national brands in terms of sales and they are also a new tool in the hands of retailers when the retailers bargain with manufacturers. Retailers are generally able to sell products under the store brand names at lower prices than the same products under national brand names and displayed on the same shelf. Their importance has also been realized by Coca Cola in 1995 when their chief executive called the private labels as parasites and blamed them for eroding profits from categories. (Vertical Contracts between Manufacturers and Retailers: Inference with Limited Data -- The Case of Yogurt) Thus for any retail chain to exist and prosper, they have to start selling products under their private brand names and get the product at very low rates from manufacturers.

Competitive problems

It is clear that the difficulties of Sainsbury's are due to the entry of Wal-Mart into the market. To enter the market, Wal-Mart bought over an existing established player -- ASDA in June 1999. This gave them immediately 259 stores and 19 depots. The reason for Wal-Mart to enter United Kingdom is the same for which they entered Germany -- the capacity of United States to accept Wal-Mart was becoming limited as they had already cornered a large portion of the market. The basic method of their sales is the same everywhere -- sell at a low price and give very low margins to manufacturers who have to keep supplying them as there are no alternative retailers to pick up the quantities immediately. The philosophy of ASDA and Wal-Mart were similar and the clothing line of ASDS -- George has already been taken up into the stores of Wal-Mart in United States. (Welcome to Wal-World)

It is known that the culture of ASDA was based on Wal-Mart as the businessmen owners, Archie Norman and Alan Leighton had visited the Wal-Mart stores in America after they taken it over in the 80s. Thus one can say that the culture of Wal-Mart already existed in ASDA even before it was bought over. Wal-Mart is very serious about development in the country as there are plans to start 10 to 12 new stores every year. In terms of selling area the targets are very high and the company wants to create additional selling space of half a million square feet every year. These plans are not to take effect long into the future, but will take effect shortly.

The company has also decided and executed by July 2003 plans to put up some 40 mezzanine floor extensions in its stores all around the country. The advantage of these floors is that they are internal second floors suspended above the existing floors and provide extra floor space without any need for permissions. These are thus providing uncontrolled expansion and making a mockery of the existing guidance for national planning so that environment can be protected. (Welcome to Wal-World) The importance of this can be understood when it is realized that shop floors and their layouts are very important for selling. Apart from the store sizes, the other important element in the development of Wal-Mart in comparison with other retail chains is the strategy in pricing that they follow.

There are two major strategies for consumers in both store format and price format. Among retailers the price formats that are available are Everyday Low Pricing -- EDLP or Hi-Lo pricing strategy. The matter of Hi-Lo pricing strategy and implementation has already been discussed, and since those are occasional features they require high promotion. In EDLP stores, prices are always low there are no requirements for them to offer comparative numbers of promotions. In the case of Wal-Mart, the practice is to follow EDLP for their products and they are thus able to save on promotions as also discounts that have to be provided by other stores. Competition have in general higher prices which are the regular prices for the products and are thus able to provide substantial discounts, and the number of times that discounts are offered will also be higher. After a few visits to both these types of stores, consumers are able to understand their marketing plans and decide where they want to buy. The customers in EDLP stores also end up expecting less of offers or discounts. (Why Responsiveness to Retail Promotions Varies Across Retailers) Apart from prices, consumers are also responsive to store locations and range of products available in the stores. It is possible that the difference in pricing strategies of the two retail chains is also making a difference in their sale achievement.