Sainsbury’s chief executive Mike Coupe has insisted that his new strategy means the grocer has the firepower to deal with anything the market throws at it.
Sainsbury’s is to invest £150m in price in a bid to compete in the new era of grocery, but Coupe said the cost savings the business was making elsewhere means it can invest more if needed.
Coupe said the combination of promiscuous shoppers, online shopping and the growth of the discounters has led to a “perfect storm” in food retailing.
Sainsbury’s rivals are all investing in price and Tesco has yet to reveal its move on price but it is widely expected to form a key part of new chief Dave Lewis’ fightback plan.
“We are well aware that there is someone limbering up in the changing room,” said Coupe. “And we have planned for that and have the funding to do whatever we need to and deal with whatever the market throws at us.”
Sainsbury’s unveiled its strategic plan on Wednesday as it reported underlying pre-tax profit for its half year to September 27 down 6.3% to £375m. Underlying group sales edged down 0.3% to £13.92bn. Like-for-like sales were down 2.1%.
Coupe said that he expects like-for-likes across the grocery sector to be negative for the next few years but said has “robust plans” to address the challenge.
The plan, ‘Evolving to win’, focuses on price, quality and “making it easier for customers to shop in our stores”. Coupe said: “Hopefully then customers will see that they can do their full shop under one roof, and don’t need to split their shop.”
The price investment will largely be on commodity items. For instance, Sainsbury’s 40-pack of Little Ones nappies have been reduced in price by 7% to £4.50, making them “the cheapest in the market”, Coupe said. Around half of the investment will come in the second half and the remainder in the first half of 2015/16.
Sainsbury’s will also improve the quality of 3,000 own-brand products.
Sainsbury’s will open less space than in previous years, and over half of that new space will be convenience stores as it targets 100 c-stores per year.
Of its supermarket estate, Sainsbury’s found 25% will have excess space over the next five years. In those stores it will put in non-food, or put in concessions such as Jessops.
The grocer will also trial new concepts such as a small footprint 1,000 sq ft shop with an emphasis on food to go and trial new technologies to make the shopping trip easier for customers.
As part of the review, Sainsbury’s has taken a £628m hit on property. The impairment is on 40 existing stores, and on 40 schemes from its pipeline where it will now pull out of.
It will deliver total operating cost savings of £500m over the next three years, a step up on recent levels, and reduce cap ex.