With no new news on trading/strategy to impart today with the final results and with the whole world obsessed with speculation that Justin King will soon leave, what would your PR advice have been to Sainsbury’s?

With no new news on trading/strategy to impart today with the final results and with the whole world obsessed with speculation that Justin King will soon leave, what would your PR advice have been to Sainsbury’s?

One of the problems with regular quarterly reporting of sales and conference calls with management is that in a fairly stable business like a big supermarket chain there can be precious little new or fresh left to say when the time arrives to present the interim and final results to the City and the media.

And these results usually come in the middle of quarterly trading period, so management can’t talk about current trading and just rehashing the old figures can seem a bit stale. It’s easier to sell fresh food than come up with fresh messages.

Sainsbury had an additional problem today in that speculation has erupted about the future of “the Alex Ferguson” of supermarket chief executives, namely the ebullient and long-serving Justin King, following persistent rumours that he wants to go off and run the Formula 1 motor-racing business and the recent reports that headhunters have been brought in to help plan the retailer’s succession.

Of course, it’s difficult to put these things in writing, but one approach for Sainsbury could have been for the chairman to make a short statement smoothly pouring cold water on the story without confirming or denying anything. But Sainsbury decided not to do this at the analysts meeting, which was held, as normal, deep in the underground bunker at its headquarters in Holborn, and so there was a frisson of excitement in the room when one analyst was brave enough to raise the subject in Q&A.

And, needless to say, Justin King replied that he was very committed to Sainsbury’s and very excited about the future of the business, which he was emboldened to say had the most interesting prospects of any retailer in Europe.

This may very well turn out to be a case of “no smoke without fire”, but for the time being at least the subject appears to have been put to rest, so attention turned to how Justin King’s two lieutenants would perform on stage. The finance director John Rogers got his usual chance to shine with a walkabout presentation of the financials and took in his stride an interruption from the intercom about a store opening in Sedgefield. He was even able to remind people about his previous job as property director with a quip about the quality of the store opening pipeline.

Rogers did his internal prospects of promotion no harm then and the perpetually ebullient Justin King scored no worse than a nine out of 10 mark on my “ebullience-ometer” after his usual confident presentation of strategy and Sainsbury’s core values.

But how did the commercial director Mike Coupe do? Coupe is said to be being groomed to takeover from Justin King in due.

If Mike Coupe is frustrated with the Justin King “will he stay/will he go” saga then he did a good job of hiding it today and though analysts may be frustrated that Sainsbury’s operating margins of 3.5% only ever seem to edge marginally upwards (despite the gap in profitability against their peers and the operating leverage there ought to be from market-beating sales growth) they have to accept that it could be a lot worse. Clearly, operating margins are going significantly backwards at Tesco and Morrison’s, so Sainsbury’s performance is relatively good in a challenging period for the industry.

And though the City sometimes tires of Justin King banging on endlessly about Sainsbury’s “values” and environmental responsibilities, it must be true that as the battleground moves away from price alone in the industry (given the plethora of price-matching messages), then a focus on fresh food quality and ethical trading must be positive for Sainsbury’s. And with Morrisons struggling to catch up lost ground in online grocery and in convenience stores, the two big growth points in a low-growth industry, it is hard to fault the strategic investment that Sainsbury’s is reaping in these areas at present.  

So, if your advice to Sainsbury’s hard-working PR team today was to simply rehash old news with the final results and avoid the subject of the chief executive succession then you would have been right, although there was an unfortunate sting in the tail.

In order to have something fresh to talk about today, Sainsbury pushed though the deal to buy out Lloyds Bank’s 50% stake in the Sainsbury’s Bank, which is perfectly sensible, although it might have made more sense to have done it four to five years ago before profits took off. The acquisition is not cheap, at £248m, and there will be enormous “exceptional” costs of £170m and capital expenditure of £90m over the next four years in making the transition to new and more flexible IT operating systems, with the result that Bank profits will be flat for two years.

The City didn’t like the sound of that scale of risk and complexity, with the result that the Sainsbury’s share price has gone backwards today, despite its relentless message about market-beating sales growth.

 

About Nick Bubb

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”.