Sainsbury’s departing chief executive Justin King has insisted that the gap on quality and values that differentiates the grocer from competitors will only widen as rivals continue to focus on price investment.
King said Sainsbury’s values are “more not less relevant than they’ve ever been”. While the grocer will always be competitive on price, he said that distinguishing characteristics such as provenance are still important to customers. “To think value is purely about price completely misreads where the customer is,” he maintained.
King, who reported a 5.3% rise in pre-tax profit in the year to March 15 in his last full year update before he exits in July, said that in 2008 when the economic downturn started “everyone said there would be a headlong race to the bottom and price was the only thing that mattered”.
He pointed out: “We said then that while we will always be competitive on price, the long-term strategy should always be about real points of difference.”
King said that his rivals had stopped investing in stores and quality, that “the gap widened between them and Sainsbury’s” and “we’re seeing this happen again now”. He added: “Now the focus is on price again and we’re seeing some of our competitors take major steps back on in-store standards and stores, so the gap will only widen again.”
Sainsbury’s incoming chief executive Mike Coupe said that the grocer has been “slowly breaking away from higher promotions” over the last two years and “lowering the average retail prices and promoting in a less deep way”.
He also said Sainsbury’s had been ensuring its pricing hierarchy was logical, and communicating clearly through shelf edge labels. He said Morrisons, which last week launched a price offensive permanently lowering the price of 12,000 items by an average of 17%, has “come late to the party and is to some extent playing catch-up with the rest of the market”.
King observed: “The artificial high/low promotional market has run out of steam. Customers want simple pricing and relevant vouchering or promotions.”
He said the big price changes on basics such as milk, bread and eggs had already happened and Sainsbury’s “covered it off quickly”.
“There is always a skirmish around April and May, and that’s what it is again”, said King adding the caveat: “We will never be complacent.”
He said Sainsbury’s Brand Match scheme reassures customers of “what we already knew - that we were already competitive on price”.
King added: “Many of the things we do do not have an immediate effect but are right for the long term.”
He gave an example as the recent controversy about nut allergy labeling. “A new EU law came in and some of our competitors responded by putting warning labels on everything. We take care to only put warnings on products where there is a risk of contamination and we can do that because of the strength of our supply chain. It’s not helpful to the customer to do blanket warnings. It is investments like this which pay dividends in the long term.”
Sainsbury's full-year profits up 5.3% as boss Justin King prepares to bow out
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Sainsbury's Justin King: 'The gap between us and rivals will only get bigger'