Introduction
The supermarket industry is one of high competition and is very saturated. Not only do the major brands like Sainsbury’s offer food and drink, they also branch out into a variety of other industry’s offering other services for example Sainsbury’s Bank and Tu clothing to name a few. Differentiating themselves to acquire customers is of high importance and in order for them to grow they will have to take these customers from their competitors. With many options out there and no cost to the customer of switching an increased need becomes apparent of looking at what they can do to attract and retain customers. A balanced scorecard looks at four main perspectives these are Financial, Customer, Internal and Growth and Development. Using these four categories Critical Success Factors can be identified telling the business what they need to be good at in order to keep functioning. Key Performance Indicators are then used as a way to measure the success of these identified factors.
Financial Perspective
(All financial statistics are from the London Stock Exchange Website for Sainsbury’s)
A healthy positive cashflow is a critical success factor that Sainsbury’s should adopt and is arguably the most important. Many consider cash flow to be the lifeblood of any business and without cash a business would not be able to survive. With no cash Sainsbury’s staff and suppliers would not get paid and would in turn cause negative relations possibly ending in negative press for the company affecting how the public see them. Operating cash flow for Sainsbury’s decreased in 2016/17 this mainly due to the fact dividends of £230 million were paid to its shareholders. The impact of the dividend payment was reduced by controlling capital expenditure.
Strong gross profit margins are the next critical success factor that should be considered by Sainsbury’s. As it is easy to compare entities operating in similar or different sectors, supermarkets no longer solely operate in the grocery industry they have diversified by acquiring Argos. It is also a universal tool for potential investors to quickly see the profitability of the business. Gross profit has also been impacted by increased revenue growth 7% over 5 years this may be deemed to be insignificant in many industries but due to the nature of the Grocery industry due to the growth of ‘discount supermarkets’. It has been hard for the likes of Sainsbury’s and Tesco’s to compete with them in terms of price, a lot of the growth in sales is as a result of it increasing its convenience store presence. For Sainsbury’s, their gross profit margin has increased from 6.19% in 2015/16 to 6.23% in the year 2016/17, whilst Tesco Group Plc’s gross profit margin is 2.2% which is very low.
A final critical success factor that Sainsbury’s should adopt in relation to the financial perspective of the balanced scorecard is cost reduction. Sainsbury’s have implemented a cost reduction strategy over the past two years, it is part of their 3 year plan to reduce costs by £500 million an example of this is cutting 1,000 jobs in their head office. They have also committed to another £500 million of cost savings starting from 2018/19, they are implementing these savings to reduce their prices to become more competitive within the market. This suggests that having low prices is becoming a threshold competency, Sainsbury’s must do this as they no longer represent the premium supermarket. They are also increasing the speed at which they bring new products to market. This more efficient method will hopefully reduce prices and expenses. Sainsbury’s are also becoming more environmentally friendly, e.g by installing LED light bulbs to reduce their utility costs, which are continuing to rise at a fast pace.
Internal
Moving onto the internal segment of the balanced scorecard, the question needs to be answered of ‘what processes must Sainsbury’s excel at?’.
Customers’ expectations are constantly increasing – they demand a varied choice of products in accessible locations at times that are most convenient for them. As a result, a critical success factor for Sainsbury’s should be to offer a smooth service via its convenience stores. One of their key goals is to supply their products to customers ‘whenever and wherever they want them’ (Annual Report 2017) and the main approach to this would be by focusing on convenience stores. A more quick, easy and accessible way of shopping – rather than travelling to an out-of-town supermarket – is preferred by consumers with the busy lifestyle they lead. This is supported by the latest report figures which show that supermarket sales declined nearly 2% and sales at convenience stores grew by over 6% (Annual Report 2017). Going forward Sainsbury’s need to consider closing some of the loss-making supermarkets before they cause too much of a drain on profits and instead invest their effort in improving operations at convenience stores to further enhance the efficiency and effectiveness of smaller stores.
Similarly, the online service links in with the concept of a fuss-free experience. Online grocery shopping is one of the fastest growing sectors with sales increasing 14% year-on-year (BBC news 2017) so Sainsburys need to excel at this to survive in the food retail market. Another critical success factor must be to improve distribution channels with its online delivery service which can be measured by the KPI of average delivery time from the customer placing the order to it being on their doorstep. However, to make rapid delivery possible, Sainsbury’s need to perfect distribution. Recently they opened their first online fulfilment centre with the capacity to fulfil 25,000 customer orders each week (Annual Report 2017) but they need to ensure these operations remain effective as they grow by utilising technology and the capacity available to their advantage.
Innovation and Learning
This element of the balanced scorecard questions if Sainsbury’s can continue to improve and create future value. This allows Sainsbury’s to consider their capacity to maintain their competitive position through the acquisition of new skills.
One critical success factor Sainsbury’s should focus on is investing in their training schemes. Hopefully leading to an improvement in the skills of their employees, better skilled employees will provide enhanced service to customers and give Sainsbury’s a competitive advantage. Tesco, Asda and Morrisons offer virtually the same goods and services for similar prices, therefore customer service may make Sainsbury’s more attractive to consumers. Especially since most of Sainsbury’s revenue stream is from in-store sales, employees will be in contact with customers on a regular basis.
A key performance indicator to determine if investing in training schemes is adding value, is to monitor in-store customer satisfaction levels. An improvement will mean the investment is clearly adding value to customers showing that the acquisition of new skills is maintaining, if not improving its position in the market. Within Argos stores customer satisfaction ‘customer satisfaction scores are at their highest levels ever’ (Annual Report) showing there has been improvement in customer service in 2017 but only in Argos stores. Sainsbury’s could potentially learn from Argos’ training schemes, to improve their own. Moreover ‘Investors in People’, the international standard for people management, awarded Sainsbury’s a Gold accreditation for the third time – making them the largest UK employer to receive this distinction (Sainsbury’s website – values). As a result Sainsbury’s have grown their investment in apprenticeships which gives employees the chance to receive on-the-job training while earning a professional qualification. In order to create future value it is vital for an improvement in Sainsbury’s training schemes. Since one of the business strategies of Sainsbury’s is “colleagues making the difference” (sainsbury’s website) this critical success factor fits in perfectly with the senior executives’ ideology.
Linked to this another critical success factor which Sainsbury’s should focus on is improving employee satisfaction. Employees are serving numerous customers on a daily basis hence keeping employees happy is vital if Sainsbury’s wants to be known for excellent customer service. If employee satisfaction is low, this may result in employee turnover being high. As experienced and trained employees would be leaving the business thus money spent on training would be wasted. Moreover it is costly and timely to employ new employees as HR would have to spend money on advertising and going through job interviews. Hence illustrating the importance of employee satisfaction.
A key performance indicator to measure this by doing employee questionnaires, 77% of employees said Sainsbury’s is a great place to work in 2016/17 whereas only 74% in 2015/16. Thus a 3% improvement, this shows Sainsbury’s is successfully to improve employee satisfaction. As mentioned above Sainsbury’s were awarded a Gold accreditation from Investors in People. Thus showing Sainsbury’s is striving to improve employee satisfaction. If this improvement continues, customer satisfaction will also grow.
Customer Perspective
The customer perspective of the balanced scorecard involves analysing what new and existing customers value from Sainsbury’s as a business and helps to identify areas that would matter to consumers as a whole.
Achieving a superior quality of products compared to their rivals is a critical success factor that Sainsbury’s should focus on. Quality of products is a way that they are already starting to differentiate themselves in order to gain customers. If the food that Sainsburys sell is of poor quality then people will decide to go elsewhere, this will cause the loss of not only food sales but also sales of the other products offered in store. A key performance indicator that could be used to measure this is customer satisfaction. When ranked against Tesco, Morrisons and Asda in a HPI Quality survey of 1000 consumers, Sainsbury’s ranked first in the last three years for product quality (Sainsbury’s Annual Report). This clearly indicates that consumers believe the quality of Sainsbury’s product are greater than their direct competitors.
Sainsbury’s are also wanting to try and encourage customers to eat healthier food and this can be partly achieved through improving quality. Sainsbury’s are making their food healthier by reducing the amount of salt, sugar, fat and saturated fat in their own brand products. People are now more conscious about what is in their food and the health culture that is developing, Sainsbury’s need to keep up with this growing trend and continue to make more of their products healthy.
Another critical success factor that could be adopted is competitive pricing. Everything else equal, customers would generally choose to shop with whoever has the lowest prices. Customers also value things such as quality and in store experience as well as low prices. Lower price good quality products along with a enjoyable in-store experience will generally lead to a very high level of customer satisfaction, something that every supermarket aims to achieve. If prices are too high a large group of customers will be alienated and dissatisfied reducing revenue, on the other hand if prices are too low some customers may perceive this to equal poor quality and not want to buy it, therefore a balance is needed.
With the growth of brands such as Waitrose and M&S food, Sainsbury’s are forced to reevaluate their market position from a higher end supermarket. In a HPI Price Perception Survey (Sainsbury’s Annual Report) Sainsbury’s ranked 4th out of four for the price of their products compared to the other brands. This shows that customers currently do not feel as though they are getting good value for money. Possibly resulting in loss of customers as they may want to go elsewhere in order to get cheaper products, negatively affecting Sainsbury’s profitability.
Strategic objectives
A key strategic objective for Sainsbury’s is fully integrating and establishing Argos within their business in 2018. Argos could potentially give Sainsbury’s a significant advantage over competitors due to their new ‘four-hour delivery service’. Consumers are becoming less patient for the goods that they want so they will seek out the supermarkets that can offer them the quickest delivery – which links into the ideas mentioned in the internal part of balanced scorecard. If Sainsbury’s can capitalise on this, it could make for a very large revenue stream. The difficulty will be ensuring that Argos can integrated its unique business model, when it may be operating in a small unit within a larger Sainsbury’s store. As well as this, Argos must keep up to date with technological changes as the classic ‘catalogue’ may go out of fashion in this technological age. In some of the Scottish stores, Argos have already removed the catalogues in order to ‘test demand’ as more and more customers are deciding to shop online (BBC News article). Sainsbury’s themselves are also looking to take advantage of the impatience of consumers by using their ‘click and collect’ service which can offer same day delivery ensuring that they can compete with other supermarkets’ fast delivery. If Sainsbury’s can implement organisational synergies internally with Argos, they could reduce costs effectively, allowing them to achieve their £500 million pound plan previously mentioned.. An example of this would be more efficient distribution, this could be done by putting Sainsbury’s and Argos products in the same lorry if they are going to similar places to reduce costs such as fuel and drivers as discussed in the financial section of the balanced scorecard.
Another strategic objective of Sainsbury’s is to attract younger, more urban shoppers through the use of smaller stores in more built-up areas – opposed to the larger stores on the outskirts. There is now more emphasis on daily shopping, over the weekly shop, to fit in with the changing lifestyles of the customers. This transition from bulging trolleys to handy baskets has impacted the whole way the market operates. Consequently, the internal perspective above of reducing the number of larger stores to focus their efforts on the smaller local stores helps to achieve this strategic objective. They are more focused on fulfilling the needs of the daily, modern shopper via nifty stores. Sainsbury’s emphasised this in a strong advertising campaign through 2017 (The Grocer article 2017) where their adverts featured young people cooking in an effort to try and be more relatable to the modern shopper. Moreover, they used these advertisements to also gain focus on the quality of their food, something that is key to their place in the market.
Another strategic objective of Sainsbury’s is to be more inventive and innovative with the foods they sell, they are looking to open new lines whilst keeping their quality at the high levels that their customers have become accustomed to. In recent years Sainsbury’s have had much success with foods that are innovative and healthy for example courgette spaghetti and butternut squash noodles. If they can produce more similar products to this customers may be more attracted to shop with them, hence growing their market share, customer loyalty and satisfaction. Sainsbury’s are looking to capitalise on this recent success by developing and introducing more of their unique and quirky ‘own-brand’ products at a faster rate. By doing this, they will also differentiate themselves from the likes of Tesco and Morrisons. As a result of the high mark-up on these products Sainsbury’s will have higher gross margins, which is a KPI for Sainsbury’s as mentioned above. At the same time they should be wary of the prices they charge their customers for this quality.
Sainsbury’s are implementing a new pricing strategy in order to help reduce their higher prices. Part of this strategy is to end brand matching and instead focus on cutting prices for everyday products. Lowering these prices prevents Sainsbury’s from losing customers and gain more of a competitive advantage in this saturated market. This strongly relates to the customer perspective of the balanced scorecard, due to the fact lower prices will lead to improved customer satisfaction.
Sainsbury’s should look to expand their bank. The growth of the bank has been very poor in recent years so Sainsbury’s will most likely look to rival banks, such as Tesco Bank, to learn from their success within the banking industry but try to differentiate themselves from them too. One way in which Sainsbury’s can set themselves apart in this industry is customer service. This relates to the Learning and Growth element of the balance scorecard as Sainsbury’s had an industry-low level of complaints last year potentially showing Sainsbury’s have invested in their training to improve their employees’ skills. Therefore, a strategic objective going forward could be to market their success with customer service in a bid to attract more customers from rivals who aren’t currently offering such a successful banking experience. The acquisition of Argos Financial services is also a chance for them to expand their banking service by potentially combining this with Sainsbury’s banking.
Sainsbury’s is looking to increase the number of people who hold a Sainsbury’s bank account. They recently decided that they want to expand the number people who use their lending products. In 6 months they have increased the balances for mortgages and credit card by 23%. Also they have a lot of free ATM’s on their estate, £1 in every £11 is withdrawn from a Sainsbury’s ATM. The largest pro