Although it looks as if Justin King left Mike Coupe in the lurch, hasn’t Sainsbury got a great opportunity to exploit the turmoil at Tesco?
Conventional wisdom has it that the ebullient Justin King got out of Sainsbury just in time back in the summer, before the supermarket industry came crashing down.
And many people think that Justin King’s successor as CEO, Mike Coupe, was given “a hospital pass”, to use the rugby parlance. But people said the same thing about Ian Cheshire when he took on the CEO role at troubled Kingfisher in 2008 and yet he turned things around pretty well.
Much has been written in the newspapers over the last week or so about Tesco, since Tesco announced it had overstated its interim profits by £250m, but one of the more striking comments came at the very end of an article headlined “Tesco in turmoil as Christmas trading looms” in Saturday’s Financial Times, quoting an unnamed former supermarket executive: “This is a fantastic opportunity for Mike Coupe: he will never have Tesco in a weaker place”.
At present the City is betting that all the big supermarkets will get dragged down together by the structural crisis engulfing the industry, so today it has shrugged off the news in the Q2 trading update (for the 16 weeks to Sept 27th) that Sainsbury was “only” down by 2.8% LFL in the period (rather than the -3%/-4% expected) and that the recent Kantar grocery market share trends have overstated the decline.
Nevertheless, Sainsbury has downgraded its H2 LFL sales forecast from broadly flat to -2%, ie a similar level to H1 overall, given the deflationary environment in the industry, and the City fears that it will downgrade its profit and dividend guidance when it comes out with a “strategic update” with the interim results on November 12th
Sainsbury’s argument that it is not doing anything like as badly as Tesco and Morrison’s only gets them so far, so Mike Coupe knows that he will have to get on the front-foot on Nov 12th and drive away the doubters, with today’s conference call with analysts giving a few clues to his thinking.
Strategically, Sainsbury should be better placed than its rivals, as it isn’t encumbered with the huge out-of-town hypermarkets of Tesco (or Asda) and it is far more advanced in the key growth channels of Online Grocery and Convenience Stores than Morrison’s, while its regional base in the prosperous South-East insulates it to a degree from the chill winds blowing through the North from the relentless advance of the discounters Aldi and Lidl.
Mike Coupe was a little defensive today about the performance of the Sainsbury Online business, with sales up a lacklustre 7% in Q2, insisting that he wasn’t in the game of chasing unprofitable turnover through coupon activity, but he will need to have a convincing argument on Nov 12th for how this business can make money long-term in an increasingly crowded market.
He was on much firmer ground talking about Convenience Stores, as this is now a £2bn a year turnover business for Sainsbury , with Q2 sales up 17% (up 2.2% LFL) as the “two a week” store opening programme continues, benefiting from the way consumers and commuters are now doing much more top-up local shopping.
And though there was no mention today of the joint venture to re-launch the Netto discount store chain in the UK, Mike Coupe made a point of noting that the Sainsbury “Basics” range undercuts the discounters, so we will no doubt be hearing more about that in Sainsbury’s marketing.
But the big new initiative is that Sainsbury has upped the ante by publicly dropping Tesco from its coupon-on-till “Brand Match” policy (on the grounds that Tesco are too expensive and that customers see Asda as the real price-leader in the market now) and launching an EDLP approach to lower prices (flagged as “Fairer prices on 1000s of products” in the stores).
Sainsbury claim that over half their shopping baskets are now cheaper than Asda on branded lines, so that price matching Asda won’t cost as much as has been feared. But ultimately Sainsbury will stand or fall on the scale of the premium they charge for their own-label range, for superior quality and service.
How Mike Coupe can package all this up on Nov 12th remains to be seen, but at least he knows that the average household is currently saving £4/5 a week from the sharp fall in petrol prices, if only shoppers can be persuaded to reinvest some of that saving back into buying more at Sainsbury.
He also knows that on October 23rd, with their delayed interim results, Tesco will have to come out with its own strategy on how to respond to its collapsing UK sales and margins, so that he has a chance to fine-tune his message before the Nov 12th Sainsbury interims.
And Mike Coupe also knows that Sainsbury is a business with “ethical values”, which is surely something it can remind shoppers of in the run up to Christmas, relative to a Tesco management team burdened down by investigations from all sorts of accountants and regulators. So perhaps he really does have a fantastic opportunity to make his mark at Sainsbury in the post-Justin King era.
- Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos Retail Think-Tank