FINANCIAL ANALYSIS OF SAINBURY’S
The aim of this report will be to analyse the effects which the economic downturn had on Sainsbury financial market and performance over the years of 2008 and 2009.
The report will be dissected into four main areas. Firstly, an analysis and
evaluation of Sainsbury financial performance using ratios as a tool will be
obtained from the annual reports of 2008 and 2009. A trend analysis will be
done to demonstrate the pattern of Sainsbury financial performance over the
years 2005 to 2009. Furthermore, an analysis and evaluation of
developments in the supermarket industry will be done for the years 2008 and
In addition, a ‘what if’ analysis of the probable financial performance of
Sainsbury, had the downturn not ensued will be conducted. Finally,
conclusions of the report will be discussed to reveal if the company was
prepared and how well they handled the pressures of the downturn to
minimise impact on their financial performance.
QUESTION 1- An analysis and evaluation of the data available in the organizations’ annual reports. 30%
QUESTION 2- An analysis and evaluation of the development in the financial markets during the last two years with reference to their effects on your chosen organization. 20%
Sainsbury’s works in a highly competitive market. The UK food retailing industry is mainly ruled by four big players- Tesco, Asda, Sainsbury and Morrison’s. Together they all control approximately 75% of the UK’s market. Market leaders are adopting low cost strategy which is benefited to consumers and increasing demanding. High competition in market makes market leaders to become highly innovative to grow market share by focusing on value, price, advertising and customer satisfaction.
DEVELOPMENT IN THE UK’S SUPERMARKET INDUSTRY
The supermarket in the UK are no longer controlling themselves to just supplying food products to consumers. In 2008, financial downturn made supermarket industry to spread their risks at a time when food inflation climbed, to diverse into areas such as finance, mobile and broadband markets. This diversification provides opportunities to slowdown sales in food product, as they achieve sales in other areas. In 2008, the supermarket industry recorded £123 billion in consumer spending a huge difference when compared to £119.8 billion in 2007. This show clearly to remain competitive their strategies and financial strength were successful during the downturn period.
Taxation Policy- rate of corporation tax was decreased by government from 30% to 28%. This means supermarkets profit will be greater by saving substantial amount of money.
Government interference- government put his rights of price fixing among major supermarkets which poses a threat as they may have to control prices.
Increase in employment- in UK employment figures rise to 164,000 in 2008.
Inflation- because of fall in prices of crude oil, inflation rate decreased.
Rate of interest- interest were decreased by 2% in 2008, consumer spending were increased.
· Interest Rate – Decreased by almost
2% in 2008, which can increase
· Disposable Income – ONS revealed
that with earnings growth on a
downward trend due to the
weakening labour market, families’
real disposable income can be
‘squeezed’. This can affect sales fro
· Lifestyle Changes – People are
purchasing healthy foods and are
being more health conscious.
· During the downturn, more
people are starting to prepare homecooked
meals; a change in trend
from eating out which is expensive
due to food inflation.
· Increase in Technology – New
technologies can make service more
convenient and increases customer
satisfaction, leading to a competitive
advantage and increase in sales.
· Green Issues – Supermarkets are
investing in green issues by using
less plastic, recycling wastes and
shifting to environmentally friendly
procedures. Profits are used for this
but sales can increase because
consumers are demanding
environmentally friendly products.
· Foreign trade restrictions – Imports
attract taxes and tariffs making goods
more expensive. Customers may
then demand substitutes
EFFECTS OF FINANCIAL MARKET ON SAINSBURY
In 2008, Sainsbury experienced a slow growth when compared to past results. Due to the downturn Sainsbury adapted some measures to increase its profitability in 2009. Some of the changes they made are discussed below.
Increase in food inflation, rise in employment and decrease in disposable are the effects of the downturn that made Sainsbury to adapt some changes for a better performance.
Household budget were under burden from the effect of the downturn. Sainsbury had to reduce the cost of basic products which customer faced as the biggest squeeze of income in 50 years. To improve layout, increase space, future hedge with suppliers and reduce unnecessary cost, marketing strategy need to be shifted to focus more on cost as well as adjust value chain. As customers were demanding low cost products, Sainsbury adjusted according to demand.
Interest rate and CPI annual inflation rate decreased and standard of living changes are also the effects of downturn. Due to decreased interest and CPI inflation rate it benefited Sainsbury as more customers were able to take advantage of lower borrowing. Sainsbury took advantage of this by reducing prices and strengthened marketing of their cheaper own label products. People living of standard changes as the economy dipped, more people decided to make home cooked meals just to reduce the cost attached to eating out. Penny pinched consumer were dependant on Sainsbury to provide low cost vegetables and meats.
Competitive rivalry and customer reliability caused Sainsbury to focus more on price, value and advertising while strengthened excellent customer service. Sainsbury annual report (2009) specified that a clear strategy was developed to focus on five areas:
Sainsbury annual report (2009) stated that a clear strategy
was developed to focus on five main areas: great product at
fair prices, increase growth of non-food ranges, additional
marketing channels to reach more customers, increase space
and active property management (includes disposal of
property and investing in increasing space in profitable areas).
Sainsbury increased promotions and marketing strategies
such as ‘Making Sainsbury’s Great Again’, loyalty discount
cards, online shopping, cheaper and high quality own brand
goods and increase in technology and faster checkout time.
They additionally branched out spreading risks into the
financial sector, oil-related areas and department stores.
QUESTION 3- ‘What if’ analysis of the possible financial performance that might have existed had the downturn not occurred. 30%