Sainsbury’s today reported it is to acquire the 50% of its shareholding in Sainsbury’s Bank it did not own from Lloyds Banking Group for £248m. Retail Week looks at the implications.
Sainsbury’s has outlined a 42-month plan with the aim of increasing the number of banking customers and enhancing loyalty to its brand. The transition will be spearheaded by Sainsbury’s Bank chief executive Peter Griffiths who was appointed last November.
With the retailer’s Nectar card scheme well established, Sainsbury’s will be hoping it can entice consumers to use Sainsbury’s for a number of services including retail, banking and energy.
The move may represent the venture the City has been crying out for. With no international business following pull outs from the US and Egypt, analysts have been keen to see some strategic growth potential from Sainsbury’s beyond its metronomic quarterly growth.
Shore Capital analysts Clive Black says: “Sainsbury has no international exposure, it sold Homebase a number of years ago and its exploration of the ‘food on the go’ market through ‘Fresh Kitchen’ came to nothing.
“Therefore, we understand why taking full control of Sainsbury’s Bank could be timely, albeit would not structurally move the group’s profit and earnings dial.”
Black adds that Sainsbury’s Bank may be able to take advantage of new cost-effective current account rules due later this year which Tesco will not introduce until next year.
“Sainsbury’s has opportunities to further leverage its brand loyalty at a time when consumers still lack confidence in core financial institutions,” Conlumino analyst George Scott said.
However, the move was not universally welcomed. “The full year 2013 results are OK, but guidance looks slightly disappointing and the decision to buy out the Bank – while sensible – adds risk over the transition period,” says Panmure Gordon analyst Philip Dorgan.
Moreover, there were questions over how long the deal will take to complete and with Tesco chief executive Philip Clarke admitting the migration of its bank into its control has been slow, the process may take some time to have a material effect on the size of Sainsbury’s customer base.
The timing of the deal is also interesting. The proposed ‘Verde’ deal between The Co-operative and Lloyds Banking Group – which would have seen the former take on 631 of the latter’s branches – collapsed less than two weeks ago. Outgoing chief executive Peter Marks blamed the continued economic downturn and tougher regulatory environment imposed on banks.
Sainsbury’s is clearly entering market at a difficult time for distrusted mainstream banks and will hope its strong brand values and loyalty credentials will help it attract custom to checkout and counters alike.