Sainsbury’s new boss Simon Roberts unveiled a healthy set of numbers this morning in his first City outing since succeeding Mike Coupe as chief executive. 

  • Sainsbury’s CEO Simon Roberts says it is “too early to say” when city-centre stores will recover
  • “We need to prepare for substantially more customers wishing to shop online”
  • “We have seen switching gains from the discounters and the rest of the big four”

The grocer posted an 8.2% jump in like-for-like sales during the 16 weeks to June 27, as food sales surged 10.5% amid the ongoing pandemic and a spell of warmer weather. 

General merchandise revenues, including sales made through the Argos business, were up 7.2%, while online sales across the group more than doubled during the quarter. 

The figures underscored the fact that Sainsbury’s has emerged as one of the UK’s biggest winners from the health emergency – Roberts was keen to point out that the business has won customers from Aldi, Lidl and its big-four rivals during the lockdown. 

But attention is already turning to the future and how Roberts might shape Sainsbury’s strategy in order to maintain such momentum once the coronavirus crisis subsides.

The former Boots boss emphasises that he is focused on the “here and now” for the time being – Roberts only took the top job at the start of June – following a four-month period in which the retailer’s operations have “fundamentally changed”. 

But against that backdrop, the pressure will soon mount on him to formulate his strategic thinking and map out how Sainsbury’s can capitalise on such seismic shifts.     

Simon Roberts

Simon Roberts took over the top job at Sainsbury’s last month

Reshaping the store portfolio

One of the biggest considerations facing Roberts is Sainsbury’s sprawling store portfolio. 

As of March, the end of Sainsbury’s last financial year, the group operated just over 2,000 locations, including its supermarkets, convenience stores and standalone Argos and Habitat shops.

Roberts will need to think carefully about the size of that estate, where shops should be located and how they can be better integrated with the online proposition.

The group shuttered more than 600 stores at the height of the pandemic, the majority of which were standalone Argos branches. Despite having its physical presence decimated for much of the quarter, Argos increased sales 10.7% year on year as it pivoted to become an online-only operation. 

A huge question mark hangs over whether Sainsbury’s will need to retain such a large number of standalone Argos stores and the cost burden that comes with them. 

“The demand is growing and when you listen to customers you hear a lot of feedback that they are enjoying shopping online”

Simon Roberts, Sainsbury’s

JS has already relocated hundreds of Argos stores to shop-in-shops inside Sainsbury’s supermarkets – an acceleration of that strategy and the disappearance of the Argos fascia from some locations is not beyond the realms of possibility.

There are equally important decisions to be made around its 800-strong convenience store portfolio too.

At a time when previously bustling city centres such as London have become ghost towns as workers swapped office desks for their dining tables, a chunk of Sainsbury’s convenience business has been hampered. At present, 26 of its city-centre convenience stores remain closed even as lockdown measures ease. 

Roberts maintains it is “too early to say” when such locations will recover. The reality is that as flexible working becomes the norm and people spend less time in offices, historical footfall levels that made such locations so lucrative may never return.

Roberts says: “We’ve got a very extensive convenience network and the city-centre stores will take time to recover. But as a counter to that, we have a very significant number of our shops in neighbourhoods, where customers are shopping locally, and we’ve seen significant growth in sales in those stores.”

If such local shopping trends persist, Roberts may need to pivot Sainsbury’s c-store business away from city centres and commuter hubs and expand its presence in neighbourhoods. 

Read more: Deep dive - Has grocery retail changed forever? 

Coronavirus has driven unprecedented demand for grocery retailers, but it’s also dramatically changed how we buy and consume food. Retail Week looks at the new shopping behaviours and trends that will persist beyond the pandemic.

Growing online profitably

It might not be a new conundrum for grocers, but the importance of sustainably building an ecommerce food operation has heightened dramatically during lockdown. 

Online grocery sales have skyrocketed over the past three months – Sainsbury’s was fulfilling an average of 370,000 orders a week prior to lockdown, but made more than 650,000 home deliveries last week. Online accounted for 17% of its total grocery sales during the first quarter, and Roberts notes the business has not yet reached “the high-water mark” as digital demand continues to grow. 

Sainsbury's bags

Click and collect is now available at more than 300 Sainsbury’s stores

Last month, Tesco boss Dave Lewis said Britain’s biggest grocer had spent £4m to double its online capacity. Sainsbury’s finance chief Kevin O’Byrne says its capital expenditure in that area has been “slightly lower”.

The return on that investment has been huge in terms of building capacity, but ensuring that those increasing order volumes are fulfilled profitably will be a crucial strategic consideration for Roberts.

Sainsbury’s click-and-collect proposition, which wipes out the costs associated with last-mile home deliveries, could play a key part. The retailer has already increased the number of stores that offer click-and-collect groceries to more than 300, which is 184 more than it had at the end of March. Although Roberts did not set any targets, the number is likely to increase but many customers may need to be incentivised if they are to collect their orders from local supermarkets rather than enjoying the added convenience of having it delivered to their doorsteps.

For the time being, Roberts’ focus is on ensuring Sainsbury’s can “satisfy the demand”.

“We will continue to look at it as we move forward but the demand is growing and when you listen to customers you hear a lot of feedback that they are enjoying shopping online,” he says.

“We need to prepare for substantially more customers wishing to shop online than we saw at the beginning of this crisis.”

But as online demand continues to increase and gobbles up a growing proportion of the group’s top line, the profitability conundrum posed by grocery ecommerce will have to be addressed sooner rather than later.

Fending off the discount fightback

A combination of their online propositions, convenience store networks and more expansive ‘one-stop-shop’ supermarket propositions have allowed the established big four to gain ground on the discounters during the coronavirus crisis.

Although Aldi and Lidl have continued to increase sales during the crisis, their respective market shares have come under intense pressure. Kantar data revealed that Aldi lost market share during the 12 weeks to June 14, as its slice of the grocery pie slipped to 7.5% compared to 7.9% a year ago.   

Sainsbury’s market share also contracted but its sales growth during the same period outstripped that of its discount rivals.  

Roberts lauds Sainsbury’s sales performance over the first quarter of its financial year and trumpets that it won sales from its big-four rivals as well as Aldi and Lidl. 

“Obviously with rising unemployment, real pressure on consumer spending, we’ve got to make sure we continue to make our offer really relevant and right for customers”

Simon Roberts, Sainsbury’s

But the grocer will not be able to rest on its laurels. Aldi and Lidl emerged as forces to be reckoned with in the UK following the 2008 financial crisis as shoppers tightened their belts. As another deep recession looms ominously on the horizon, similar spending habits could take hold again and play into the hands of the discounters. 

Roberts and his big-four contemporaries will need to find ways to keep increasingly value-conscious shoppers out of the clutches of Aldi and Lidl.   

“The situation ahead is very unpredictable,” Roberts says when asked about what behaviour a recession might spark. 

“Obviously, with rising unemployment and real pressure on consumer spending, we’ve got to make sure we continue to make our offer really relevant and right for customers.”

Sainsburys Mansion House fascia

Some of Sainsbury’s city-centre convenience stores remain closed

Sainsbury’s has invested heavily in price during the pandemic, slashing prices across 200 lines. Around 1,000 products are now part of its ‘Price Lock’ campaign. 

But Roberts is conscious that more work needs to be done to emphasise the grocer’s other credentials, including customer service, quality and convenience, to prevent shoppers from switching to the discounters in a recession. 

He says: “Over this period so far, we have seen switching gains from the discounters and the rest of the big four, we have seen volume share gains ahead of the market and we are very focused on how we continue to make sure our offer is competitive for our customers.

“In terms of the scenarios that could play out in the autumn, our focus very much is to make sure that in value, in service and in convenience we continue to push really hard to make sure we give our customers, whatever the circumstances are, exactly what they’d expect of us.”

Doing that will be much easier said than done in what is a ferociously competitive market. Roberts will be afforded very little time to get his feet under the table before revealing where his strategic priorities lie.