J Sainsbury plc (LON: SBRY) owns Sainsbury's Supermarkets, Ltd. as its primary operation. With 557 supermarkets and 377 convenience stores in 2010, which consisted of over 16% market share in the UK, Sainsbury's is one of the largest supermarket chains in the UK. It also owns Sainsbury's bank with Lloyds Banking Group and has two property joint ventures. Due to its joint venture with Lloyds Banking Group, Sainsbury's is exposed to financial risk as it expands it insurance and retail banking business. It is also affected by increased legislation in the grocery retail industry.
These earnings have outperformed the market even in challenging economic conditions where household budgets are constrained and inflated commodity prices have affected Sainsbury's costs.
While Sainsbury's main business is its supermarket chain, its joint venture with Sainsbury Bank consists of over £10 million of its after tax profit. Its percentage of Sainsbury's revenue increases every year and is expected to play a more significant role in Sainsbury's operations. Sainsbury's bank provides insurance products, banking services, and transactional services. As a result, Sainsbury's bears the bank's risks, such as vulnerability in its insurance business due to natural or man-made disasters. Competition in the financial services industry also affects Sainsbury's Bank's ability to operate effectively and profitably, which could negatively impact Sainsbury's net income.
In February 2010, a new Grocery Supply Code of Practice (GSCOP) was implemented and put into practice in 2010/2011. Under this legislation, applicable grocery stores, such as Sainsbury's, have to appoint a Code Compliance Officer to mediate disputes between suppliers and retailers. Among other new legislation, the Bribery Act 2010 comes into effect in the second half of 2011. These types of legislation often require Sainsbury's to change their current practices or create new positions. Any failure to comply also leads to legal prosecution or fines, all of which could increase Sainsbury's costs.
Sainsbury's main competitors are:
Sainsbury's only operates in the UK, where Tesco Plc (LON:TSCO) and Asda Stores Ltd (now owned by Walmart) are the country's largest and second largest supermarket chains, respectively. These two companies serve as Sainsbury's main competitiors.The industry is mainly fragmented with most players commanding less than 20 percent of the market share, with the exception of Tesco Plc (LON:TSCO), which holds over 30 percent.