Overview of Sainsbury and Its Operations
Sainsbury is considered to be the second greatest supermarkets chains in the UK, with a share of around 16.0% of the supermarket industry. The company was established in the year 1869 by John James Sainsbury and is headquarter in England, United Kingdom. It operates and runs its business operations over 800 convenience stores and 600 stores, all in the United Kingdom. However, Sainsbury is registered on the LSE (London Stock Exchange) & is a FTSE 100 Index’s constituent. It operates and runs its operations through two segments which includes Retail and Financial Services. Its brands include Habitat, Nectar, Sainsbury Bank, and Argos.
The company also proposes a broad variety of locally tailored services and products across food, clothing, general merchandise, seasonal, and beauty. In addition, its also proposes groceries under different categories like fruit and veg, drinks, home, pet, household, food cupboard, bakery, frozen. By the end of FY 2021, the company generated a net income of around £ (280) million and a net revenue of around £29.048 billion. Hence, the total number of employees employed by the company in 2021 is almost 180,000. Furthermore, its supply chain runs from thirteen RDCs (Regional Distribution Centres), with two primary national distribution centres with respect to slower moving goods, frozen food facilities (Tetlow and Pope 2020).
The primary purpose of this report is to discuss about the impact of Brexit Sainsbury has on the financial performance. However, an overview of Brexit and the influence of Brexit on food industry & retailers have also been discussed in the report. Furthermore, the reason behind why the company gets affected due to Brexit has been explained. The financial impact on its performance and how it has dealt with this issue has been discussed in the report. Lastly, on the basis of overall discussion mentioned in the report a conclusion has been provided.
Overview of Brexit
Brexit is an acronym of “Britain Exit” which is the UK decisions to depart the European Union (McNally and Wyness 2017). Thus, it includes the procedure negotiating borders, new trade deals, trade regulations and citizen registration rules (Feldmann and Morgan 2021). The process began on June 23, 2016, once the referendum or poll has been passed by around 51.9% to 48.1%. The Brexit announcement caused the pound depreciation, a reduction in the car production within the United Kingdom, & the transfer of around $1 trillion assets to another European countries by an industry of financial services. Hence, many analysts think Brexit would eventually be positive economicall for the United Kingdom. A difficult Brexit is a situation into which the United Kingdom provides retrieve to an individual market & customs union. For instance, under European Union law, a resident of another European Union nation may determine to shift & live in the United Kingdom with no limitations.
Hence, this has ran to a large increment in immigration in Britain & generated complexities fulfilling service and housing needs (UddinAhmed, Mazid and Ahmed 2020). Through a firm Brexit, the United Kingdom would implement full control across its borders. In the financial year 2015, a “Conservative Party” is known for the referendum and thus some voters of Pro-Brexit were older, and working-class inhabitants of England’s countryside. Hence, they were frightened of the free association of refugees and immigrants, claiming in the procedure that residents of poorer citizens were taking benefits and jobs. Additionally, the UK has already been deteriorated from Brexit and the economy was reduced & various businesses have enthused their locations to the EU.
Impact of Brexit on the Food Industry and Retailers
As per the comprehensive trade analysis, it has been found that the prices of supermarkets have risen by 1.3% in this month, marking a considerable increment in the price inflation of grocery because supply chain complexities begin to influence shoppers (Langan 2016). However, price increases were most considerable in savoury snacks, cakes and pastries, and cat food as per the analysts. For general public, Brexit might seem to be old news but for the food and retailers’ producers who vary on importing or exporting products to & from the landmass, the United Kingdom’s exit from the EU is a daily concern. Therefore, some approaches of the Brexit which have severe influences on the drink and food industry are still in discussion, like the NTP (Northern Ireland Protocol), whereas other have just been represented after several months of delay, such as new trade regulations with respect to imports from the European Union. Additionally, affecting the way drink and food products are exported & imported, Brexit has also altered trends in the people movement into the United Kingdom.
Hence, the first six months by the FDF (Food & Drink Federation), shard completely with PoliticsHome, drinks and food exports to the European Union were around 15.9% as compared to the financial year 2019. On 31st January 2020, the UK properly left the European Union, with most modifications to trade agreements coming into influence on 1st January pursuing the transition period. Dairy and meat products have been hit worst because of stringent rules of post-Brexit for businesses vending goods of animal source to customers. The full influence of Brexit on consumers and businesses would not be flt till next year with scarcities set to deteriorate in industries fluctuating from food – building materials, a foremost customs professional has received. Hence, the new need for pre-notice of influx in the United Kingdom with respect to agri-food imports would be represented on 2022 as faced to the already postponed date of October 1st this year. Controls to protect plants and animals from diseases, contaminants, or pests would also be postponed, as would the requirement for Security and Safety declarations on imports. Moreover, the online grocery sales vended to around 12.2% in September from almost 13%. Currently, the average online store is worth around £78.28, almost £17 at the beginning of the pandemic. Despite the positive influence Brexit has on the business, it has been said that the EU exit can negatively influence longer-term prospects.
Brexit would have a larger influence on the drink and food industry in comparison to Covid-19 pandemic, the erstwhile manager of Sainsbury’s has alerted. Due to Brexit, the supply of fish, meat, and dairy products to its warehouses in Northern Ireland might be considerably decreased from January. The supermarkets chief executive said that “If they do not receive better simplicity on the situation of Northern Irish then they would observe a limitation on the products ranges they can sell. Thus, supermarkets supply chains would knock by Brexit either there is an open trade deal between the United Kingdom and European Union as the protocol of Norther Ireland thrills on 31st December. In addition, the company has 13 warehouses in Northern Ireland, & its experiences would be represented by its competitors Tesco, which has around 55 warehouses in the region, & Asda, which has almost 20 shops there. Both the chains also source various products from the mainland United Kingdom. Hence, it has been said that customers are anticipating value for money & continuity of supply and they require clarity from the government in order to assist them. Whereas, on the other hand, considerable differences continue in negotiations among the European Union and United Kingdom, trade meetings on Brexit are imagined to continue. However, if a deal may be baffled it is anticipated that products or goods that are 50% British would restrict under an origin rule for quota-free and tariff-free sales through the European Union. Moreover, under the protocol of Northern Ireland, EU rules would implement in the region, so that supermarket chains would be conveying foods to the shops situated in Belfast, Derry, or Enniskillen would also have to gratify rules of origin description. This need might influence the biscuits sales of the company, for instance, if the grain is being traced from somewhere else or Ukraine. Sainsbury & other groceries want the UK and EU to set up the “trusted traders” agenda in order to shorten the process. That will create an auditable, and certified fast-track methods for products to run in the North with a similar comfort they perform now (Fernández, Paz-Saavedra and Coto-Millán 2020). Hence, clients in Northern Ireland would anticipate to purchase the similar variety of products. Currently, there are almost 500,000 job vacancies through the drink and food supply chain & a requirement for workers is prima to wage increment, which is probable to be happened on to customers.
Sainsbury's Financial Performance
Financial Risk & Impact of Brexit
On the basis of Sainsbury annual report, it can be seen that there has been a continuous regulatory & economic hesitation in the United Kingdom pursuing leaving the European Union in 2020 and a shortage of simplicity around further trading agreements pursuit a transition period (O'Reilly et al. 2016). Thus, these worries might have an unfavourable influence on customers, colleagues, and supply chains, possibly influencing the performance of trading around the entire sector. In order to mitigate this, the response team of Brexit was being in place throughout the previous year to prepare actively for the no deal situation. The team coordinates and corporates activities through trading, HR, finance, legal, retail teams in order to assure that mitigations have been placed so that influence on the supply chains, colleagues, and customers reduced. Hence, these activities sustained to concentrate on three essential areas of the risks that is postponements at borders, decreasing an availability of the fresh product and choice. Secondly, a major catastrophic or incident event might influence the businesses individual brand and businesses capability to trade. Therefore, Sainsbury revelation to major incident risks and operational resilience might be greater following an Argos acquisition given the business complexity and increased size. Since to mitigate this, the wide- resilience exercises of business are commenced to reproduce real life business scenarios & test their ability to respond efficiently. Moreover, all key business procedures are evaluated for operational resilience in contradiction of minimum standards sets & contingency measures are tested on a regular basis. Key strategic locations or positions have an automatic emergency call cascade solution applied which enables for emergency interactions made with colleagues & for feedbacks to be obtained back when needed.
Although the direct impact of Brexit cannot be traced in the financial performance but there is no direct financial performance which can be traced (Jones and Comfort 2019). However, the reduction in performance is the combined effect of Brexit and Covid -19 pandemic (Mogaji 2018). Based on the Sainsbury financial statements mentioned in the report, it can be observed that in 2020 the net revenue declines significantly in comparison to 2019 and ultimately the gross profit also declines to $2016million in 2020. Whereas, on the other hand, the operating profit increased marginally to $650million as it has utilized its operating profit efficiently in terms of generating net sales. Lastly, as there is a reduction in the net revenue and gross profit, the net profit also decreases significantly in the current year as compared to previous years.
Previously the leaders of food industry warned the scenario may deteriorate over the period of Christmas (Hoinaru and N?stase 2019). A shortage of delivery drivers & lack of growing labours was being accused on an issues of supply chain. However, Sainsbury is generating 22,000 jobs in order to assist the supermarket chain in meeting higher requirement throughout the festive season. Hence, it has been said by the director that the company will be going out so that they may help their clients in celebrating and in ensuring that they have a better Christmas. By employing temporary colleagues on an appealing pay package, offering additional hours, and incentivising online drivers to an existing employee over the season of festive, they would provide what their customers need that is fantastic service and great food.
On the basis of above discussion, it can be concluded that Brexit’s uncertainty causes volatility & influences businesses operating in the United Kingdom. With respect to hard Brexit, services and goods would be subject to the tariffs, inflating the raw materials costs into finished products and Britain.
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Fernández, X.L., Paz-Saavedra, D. and Coto-Millán, P., 2020. The impact of Brexit on bank efficiency: Evidence from UK and Ireland. Finance Research Letters, 36, p.101338.
Hoinaru, R. and N?stase, M., 2019, May. A balanced approach: Brexit from political and business perspectives. In Proceedings of the International Conference on Business Excellence (Vol. 13, No. 1, pp. 804-816).
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Langan, M., 2016. Brexit and trade ties between Europe and Commonwealth states in sub-Saharan Africa: Opportunities for pro-poor growth or a further entrenchment of North–South inequalities?. The Round Table, 105(5), pp.477-487.
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UddinAhmed, J., Mazid, T. and Ahmed, A., 2020. Argos: Revolution in Non-Food Retailing. SAGE Publications: SAGE Business Cases Originals.
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