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12 December 2005
Competitive Advantage
What a difference a year makes. This time last year, Sainsbury's was languishing in the so-called supermarket wars; its sales had fallen, it was in difficulties following an investment into a new distribution system that was not working and customers were moving away from the store complaining of poor value for money and a lack of stock on the shelves.

A year later, things seem to be looking up for the supermarket. Its sales are up and its market share has also risen from 15.4% to 15.74% - that might not sound much, but in supermarket retailing it is quite a big jump in a short space of time. Now it seems that one of its rivals, who had taken over the number 2 slot in the supermarket retailing charts, is now concerned about Sainsbury's coming up on the rails and taking over its position.

The Chief Executive, Justin King, announced a three-year programme to turn Sainsbury's fortunes around and it is widely accepted by many in the City that he has begun to do just that. Sainsbury's was being touted as a company ripe for takeover a year ago but the business now seems to be more stable and is growing.

Asda, meanwhile, are concerned that they have slipped behind and have reported missing sales and profit targets. This does not mean that it is making a loss - far from it - but the market is so competitive that if any one of the main supermarkets takes their eye off the ball, they will start to lose ground. Growth is what it is all about and it is simply not enough to rest on laurels.

One of the reasons put forward for the 'decline' in Asda's fortunes has been their focus on the out of town store. The business has 289 stores and many of them are situated in out of town areas. Some years ago, Sainsbury's famously derided Tesco's plan to introduce the Club Card, only to see its sales drop as customers moved to Tesco. Of course, that was not the only reason for the move but it was a competitive advantage that Tesco secured that Sainsbury's had difficulty clawing back.

Now Asda has suffered from something similar. Tesco and Sainsbury's have invested into developing not only their out of town presence but also their presence on the high street by opening smaller convenience stores in town and city centres. These have been very successful and have helped both Tesco and Sainsbury's secure growth. Asda have missed out and this has been part of the explanation for the malaise, according to the recently appointed chief executive, Andy Bond. Mr Bond believes that Asda will need another 18 months to be able correct the trend. He believes that Asda has 'bottomed out' whilst Sainsbury's have reached the 'top of the ski slope'.

This highlights the importance of constantly seeking ways to grow a business. Getting to a level where success is achieved is one thing; staying there is another. At the heart of this is not only the strategy that the business pursues but also the constant search for ways in which competitive advantage can be gained. Competitive advantage is any way in which a firm can influence its position so that it can persuade customers to buy from itself rather than its rivals. This may manifest itself on the cost side or on the revenue side and is the variety of ways in which the firm tries to make itself distinctive in the market.

Asda will be looking at ways in which it is able to regain some competitive advantage in the coming months. It managed to do this some years ago when it launched the George range of clothing in its stores. These were well-designed and well-made clothes offering value for money. It may be that it now needs to find locations where it can build a presence in the convenience store market, but in some way it will need to regain some competitive advantage if it is to stay at number 2.

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