Section I: Introduction
Business environment refers to the factors which affect the performance of a firm. They can be internal where they are within the control of the business or external where the company cannot regulate the elements. A firm can adjust the internal environment to meet the specifications of the organization. However, the macro-environment factors cannot be modified, and the business should come up with strategies of adapting to it and mitigate their effects. The understanding of the business environment is essential. It enables an investor to determine whether a certain venture will survive in a particular area or not. Additionally, being conversant with the internal and external factors which affect a business enlightens the investor on the things needed to succeed in the market. Changing business environment is essential because it enables a company to adjust its processes to meet the specifications. However, a business can only improve the internal environment factors.
The report aims to analyze the internal and external environmental factors of Sainsbury’s supermarket. It will evaluate the factors which affect the performance of the business. The report will utilize Porter’s five forces and the PESTEL analysis in the investigation. It will be used to enlighten an investor on whether to venture into the business or not. The internal factors which affect the performance of Sainsbury’s supermarket are the threat of new entrants, as well as the bargaining power of suppliers and buyers. Rivalry from the existing players and threat from substitute products to the ones offered by the supermarket can also affect its operation. There are various macro-environment factors which influence the process of Sainsbury’s supermarket. They include political, legal, economic, environmental as well as legal considerations. From the analysis of the environment of Sainsbury’s supermarket, it is evident that there are various internal and external factors which affect the operation of the business. As a result, any investor willing to venture into this type of business should be aware of these factors and come up with strategies to cope with them to succeed in the business.
Section II: Description of the business
The chosen business is Sainsbury’s supermarket. It is the second largest chain of supermarkets in the United Kingdom. It holds a share of 16.9% of the supermarket share in the country. The business deals in a variety of goods and services. It offers consumer goods as well as banking services to the consumers. The business has experienced various challenges from the time of its establishment to the current period. There has been a lot of competition in the market, which has significantly affected its market share (Smith, 2004 241). The company has various sources of income where a significant part is from shareholders. The supermarket is listed in the London stock exchange. The business has been in existence for an extended period. However, it has undergone a lot of changes in relation to the products offered. Additionally, the company has been under the leadership of various people. There have been fluctuations in the performance of the business in multiple periods.
Sainsbury’s supermarket was initially established in the United Kingdom. However, it has expanded its operations to other nations. It has distribution centers located in various regions. However, this depends on the durability of the commodities. Although Sainsbury’s supermarket was initially established as a grocery retailer, it has expanded its range of products to include banking services (Spence and Rinaldi, 2010 55). The business has also established subsidiaries in various regions. Sainsbury’s supermarket has been able to take advantage of the opportunities in the market by satisfying the unmet needs of the market. Thus, this company is a business of emulation, which investors should thoroughly analyze before venturing into the industry. It can give a good overview of both the internal and external factors which can affect the performance of businesses in the sector of operation.
Section 3: Analysis of the business micro-environment
Business microenvironment refers to the internal factors which affect the operation of a business. It entails the elements which can be controlled by the management of a company. One of the main microenvironment of Sainsbury’s supermarket is a competitive rivalry. Many businesses are dealing with the same products as Sainsbury’s supermarket. This may affect t the market share; hence the performance of the company. The suppliers and buyers also have significant impacts on the performance of .the business (Kumar, 2oo8 204). Substitution is another critical factor which affects the operation of Sainsbury’s supermarket. There is also a threat of entry into the industry by other participants which is another vital factor which affects the operation of Sainsbury’s supermarket. These porters’ five forces are of great importance in the analysis of the business environment. They help to establish the factors within the control of the company which can influence its operations. Porters five analysis enables an investor to come up with strategies to deal with the micro-economic factors (Kennerley, M. and Neely, 2003 120).
Section 3.1.1: Analysis of Competitive Rivalry
The rivalry is a significant factor which affects the operation of the business in the service industry like Sainsbury’s supermarket. It affects both the prices and market share which have impacts on the profitability of the business. Sainsbury’s supermarket operates in a very competitive market. The company can develop strategies of differentiation as a way of making its products unique in the market. Additionally, it should invest in research and development, to get a better understanding of the needs of the consumers. This will enable the company to produce products which are needed by the most significant number of people in the market. Sainsbury’s supermarket can also consider partnering with other competitors in the market to increase the size of the market rather than competing for the limited market. This can be achieved by expanding its operation to other regions where it does not have distribution centers.
Section 3.1.2: Analysis of Supplier Power.
Suppliers form a key internal factor which affects the operation of Sainsbury’s supermarket. They determine the availability of goods and services to the customers. Additionally, they affect the prices at which the supermarket sells products and services to the consumers. The business obtains its raw materials from various supermarkets. The bargaining power of suppliers can influence the prices of goods sold in the business. High supplier bargaining power lowers the profitability of the company. To enhance the performance of Sainsbury’s supermarket, the company should establish an efficient supply chain with multiple suppliers (Duffy and Fearne, 2004 241). This will give the business an opportunity to choose the distributor with the most favorable price. Sainsbury’s supermarket should also adopt a product design which uses various raw materials. As a result, the business will be able to choose the raw materials which are cheap, hence enhancing its profitability.
Section 3.1.3: Analysis of Threat of Entry
Many companies in the consumer service industry face the threat of new entrants. In most cases, it is a viable business idea which attracts many people to the business. As a result, it is an internal factor which should be put into consideration by potential investors. New entrants bring a lot of innovation in the industry, which may be a threat to the already existing companies. Most of the new companies attract customers through a low pricing strategy. This is a blow to Sainsbury because it will lose some of its customers to the new businesses. This may affect the profitability of the company. Sainsbury should introduce new products in the market and build economies of scale as a way of avoiding being driven out of the market. Thus, new entrants are a threat to businesses in the consumer service industry.
Section 3.1.4: Analysis of Buyer Power
Buyers form a significant part of the macro environment of Sainsbury. Consumers aim to buy the best products in the market at a minimum price. This puts pressure on the profitability of Sainsbury. The size of the customer base and the power of bargaining of buyers affect the performance of Sainsbury. Thus investors trying to venture into this industry should establish a broader customer base. As a result, they will have greater control of the market than the buyers. The company can also come up with new products in order to attract more customers (Clarke, Kirkup, and Oppewal, 2012 1894). It should invest in innovation as a way of reducing the bargaining power of the consumers. Thus, investors indenting to enter the consumer service industry should have a good understanding of the nature of the consumers and come up with strategies to regulate their bargaining power.
Section 3.1.5 Analysis of Threat of Substitution
In the consumer service industry, there are various types of commodities which serve the same purpose. As a result, the threat of substitution affects the performance f companies in this sector. If other goods and services are introduced in the market and meet the needs of the customers in a better way, the [profitability of Sainsbury suffers. Substitute products become a threat to existing companies in the market if they better satisfy the needs of the consumers in a unique way. As a result, investors who target to venture in the consumer service industry should not only consider offering commodities to the market. They should be more concerned about meeting the needs of the customers in a unique way (Smith, H. and Thomassen, 2012 311). This should also do a thorough analysis of the market to understand the needs of the consumers. This will enable investors to come with strategies to satisfy demand.
Section 4: Analysis of the Macro environment
Macro-business environment refers to the external factors which affect the operation of a business but cannot be controlled by the management. A company has to develop strategies for mitigating its effects. The macro environment factors have impacts on all the businesses in the market and not an individual one. Other parties in the market mostly control them. PESTEL analysis is the most commonly used strategy to analyze the microenvironment of a business (Kozlinskis, V. and Guseva, 2006 115). It helps to investigate the effects of each factor of the operation and profitability of a business and come up with strategies which can be used to mitigate their impact. The external business environment of companies in the consumer service industry includes political, legal, economics, environmental as well as technological. They have a significant impact on the operation of businesses (Rocha, 2012 239). It is not possible for a company to operate on its own without depending on the government and other external bodies. Thus, before venturing into an industry, it is essential for investors to have a clear understanding of the external factors which can influence the operation of the businesses.
Section 4.1: Analysis of the Political Environment
Sainsbury supermarket is located in the United Kingdom. There are various political factors in the country which affect the operation of the business. The political environment in the United Kingdom is not favorable. Government and consumer debts are very high. As a result, consumers have negative attitudes towards purchasing. This has significantly affected the state of Sainsbury. However, despite the unfavorable political environment, the company has been able to continue operating and meeting the needs of the consumers. With an unstable political climate, a company has to continue developing its business continuously (Griffith, and Harmgart, 2012 14). It has to frequently come up with strategies to cope with the changing political environment. Thus, investors indenting to venture in the consumer service industry have to do although analysis of the political conditions of the country they want to carry out businesses in. They should ensure that it is favorable to support the transactions of the company. Sainsbury carries out business in international markets. As a result, it has to invest extensively on research to understand the political conditions in their areas of operation.
Section 4.2: Analysis of the Economic Environment
Economic factors form an essential part of the external environment of Sainsbury. They determine if the consumers in the market will be in a position to afford the commodities of the company. Such factors also affect the cost of production, prices as well as the profitability of the organization. Economic slowdown affects the operation of Sainsbury because it interferes with production in the economy. Unemployment and inflation affect the purchasing power of consumers in the market. As a result, it interferes with the sales and profitability of the business. To cope with the economic factors, Sainsbury should diversify its operations in different regions. As a result, when in one country the economic factors become unfavorable, the company can increase its operation in the area with favorable economic conditions (Alexander, 2009 540). This implies that investors willing to venture in the consumer service industry should do a thorough investigation of the changes in the economic condition in the country they want to carry out business. They will be able to determine if the business will be successful or not, or come up with strategies to mitigate the effect of the fluctuations in economic conditions.
Section 4.3: Analysis of the Social Environment
Social factors have significant impacts on the operation of businesses, even though the company can not control them. The characteristics of the consumers are essential in determining the success of a business. In the current world, consumers prefer purchasing all their goods and services under one roof. This implies that for a company to be successful in the consumer service industry, it should be able to offer a wide variety of goods and services. Sainsbury has introduced a range of products and services, which has enabled it to succeed in the competitive and unfavorable environment. Before venturing into any business, it is also essential to have a good understanding of the characteristics of the market. This will enable a business to come up with products which will meet the needs of the consumers in the market (Adebanjo, 2001 39). The lifestyle of the people in the market will help to determine the commodity which can be more successful in the consumer service industry. IN the current world. Most people prefer to buy ready food rather than preparing it in the market. This implies that it is a potential business in the contemporary world. The characteristics of the consumers in the market can enlighten a potential investor on the company which is likely to be successful.
Section 4.4: Analysis of the Technological Environment.
Technological factors form a significant part of the external business environment. There is the advancement in technology in the current world. Additionally, modern techniques are highly being adopted in the consumer service industry. It has positively contributed to the success of many businesses. Modern methods of production enhance efficiency and reduces the cost of production. It enables companies to expand their operations to the was of demand. Adoption of technology in the process of Sainsbury has significantly contributed to its success. The business has introduced online shopping where customers can purchase goods and services without traveling (Roberts, Xu, and Mettos, 2003 38). This has attracted many consumers to the business thus enhancing its profitability. Improvement of the services offered by Sainsbury’s online has contributed to an increase in the sales of the company. This implies that technology is an important aspect which should be considered before venturing into a particular business. It enlightens an investor on the required resources to facilitate the operation of the business. Thus, investors should consider technological advance before venturing in the consumer service industry.
Section 5: Report Conclusion
Sainsbury Supermarket is one of the leading companies in the consumer service industry in the United Kingdom. It possesses a considerable market share, which has been brought about by its strategic operations. The company has undergone a lot of challenges in the process of action. However, it has been able to overcome them. Sainsbury offers a wide variety of goods and services. This has attracted many consumers to the company because people prefer purchasing their products under one roof. There are various factors which affect the operation of Sainsbury, which is in the consumer service industry. They are divided into internal and external factors depending on whether they are in control of the company. Investors should have a clear understanding of the micro and macro business environment of the businesses they want to carry out. This will enable them to come up with strategies to respond to them hence being successful.
Porters five forces are used to analyze the internal business environment. It gives a clear outline of the factors within the control of the business which can affect its productivity. One of them is competition from existing companies. The bargaining power of both consumers and suppliers affect the operation of a company. They influence the revenue hence profitability of a business. New entrants are always a threat to businesses. They introduce new products to the market which tend to serve the needs of the customers better. As a result, they attract more customers hence affecting the market share of the initial businesses. The threat of substitute products affects the operation of firms. They are in most cases in a position to serve the needs of the consumers and are offered at low prices. Macro-economic factors also affect the operation of businesses. They include political environment and economic factors which affect the performance of companies. Social and technological factors have impacts on the performance of businesses because they change the quality of goods as well as consumption habits of the market.
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