Sainsbury’s has defied the odds by having a good recession, now it’s on the expansion trail, Tim Danaher finds out more about its plans.
Sainsbury’s has, by common consensus, been one of the winners of the recession.
By marrying a focus on food with a strong value message, the grocer succeeded in growing market share during trading conditions in which some observers thought it might struggle.
But while chief executive Justin King’s performance since taking charge in 2004 and his Making Sainsbury’s Great Again strategy have been deemed largely successful, the need to prioritise returning the company to its traditional strengths meant it lagged rivals in new business development. Sainsbury’s was later into big stores and non-food than Tesco and Asda, and remains a purely UK business.
But with the recovery complete, thoughts are turning to the next phase. And last week, Sainsbury’s gathered its operating board at its flagship store in Crayford, Kent to set out future plans.
The obvious person missing on the day was King. Among today’s top retail businesses, there is probably no chief executive who is more closely associated with his company than the urbane former M&S, Asda and Mars man.
So it was a chance for the men most likely to succeed him - group development director, and former finance boss, Darren Shapland, and group commercial director Mike Coupe - to have their moment in the limelight.
The pace of change in the business has been rapid during King’s tenure, and continues to be, with day-to-day concentration on reinforcing Sainsbury’s food credentials while work gets under way on new business directions.
Coupe explains how the grocer is in the process of relaunching its entire core own-brand range, having overhauled all of its more upmarket Taste the Difference products last year.
By this time next year, all 7,000 SKUs in the core range will be rebranded By Sainsbury’s.
The key to selling food in this market, he says, is offering slightly more aspirational meal solutions for families while helping them keep control of the budget.
“The average housewife has 20 meal occasions during a week. She wants variety and twists, but she doesn’t want to take risks,” Coupe maintains. “She doesn’t want Delia and Heston, where you need a blowtorch to do their recipes.”
But while helping customers deal with the squeeze on their finances remains as vital as it has always been, what the Sainsbury’s of the future will look like is also what is taxing minds in the boardroom and is the reason for the creation of Shapland’s new role last year.
Shapland explains how Sainsbury’s ambitions fall into three categories: today, tomorrow and the future.
By ‘tomorrow’ he is referring to the next three to seven years. The future concepts are those that are being worked on today, but will only really make a material difference beyond a seven-year period.
Today: Convenience and property
The priorities at present are convenience and property. Crayford stands as an example of how Sainsbury’s is working harder to make the most of its property portfolio, only too aware that its lethargy in the real estate market in the 1990s and early 2000s was a key factor in allowing Tesco to race ahead.
The store was built in 1986 as a standard supermarket of 37,000 sq ft. But by taking over an adjacent Homebase store, it grew to 100,000 sq ft, Sainsbury’s first store of that size. Two more of a similar size have since been opened - an extension in Lincoln, and a resite at Stanway in Essex.
Crayford boasts all the green credentials you’d expect of a new store, and the food offer incorporates all Sainsbury’s latest thinking, but the crucial point is that it allowed the grocer to transform the non-food offer, space for which has been increased from 3,000 sq ft to 45,000 sq ft thanks to the extension.
This additional general merchandise space is what has allowed Sainsbury’s to develop its credibility in fashion. The retailer has moved into the top 10 fashion retailers by volume in the Kantar rankings, and its growth is not just at the low-price end - director of non-food Luke Jensen claims that the ‘better’ and ‘best’ ranges are selling just as well as the ‘good’. Jensen says the aim is to pitch the product as the same quality as Marks & Spencer and Next, but at better prices.
More extensions are on the cards. Property director Neil Sachdev says there are planning consents for about 70 more extensions, which will enable the full non-food offer to be rolled out more widely. In total, between new stores, resites and extensions, 1.5 million sq ft of space will be added this year.
Convenience stores will account for a lot of that. Over the past two years Sainsbury’s has opened 98 convenience stores, bringing the total to 370 covering 120,000 sq ft. That is a significant amount of space, but haven’t quite met expectations because planning rules and challenges in converting buildings have conspired to delay some openings.
According to convenience director Helen Buck, Sainsbury’s is on target to open between one and two stores a week for the foreseeable future. While the convenience business is substantial, it still has a strong geographical bias to London and the Southeast, and the Yorkshire and the Northeast where Sainsbury’s bought the Bells and Jackson’s chains.
Improving representation in regions such as Scotland, Wales and the Northwest is a priority, and Buck claims to be unworried about the competition for sites not just from established convenience rivals like Tesco and M&S, but also Waitrose and Morrisons, which are also moving into the convenience space.
She sees shopper habits still moving in favour of convenience. “People are concerned about petrol and they’re concerned about waste,” she says. Coupe adds that there is a strong pattern of people shopping at big stores after pay day but then topping up in small stores in the middle of the month.
A priority too is driving sales from the existing estate. Buck says one of the big challenges has been getting suppliers to understand how convenience retail differs from big store retail. However, she says progress is being made in tailoring promotions for convenience stores, where price cuts work better than bogofs, and in packaging and case sizes to help with the operational challenges.
Also under Buck’s remit comes the new Fresh Kitchen format being piloted on London’s Fleet Street. It’s still early days, and the menu has been adapted - the biggest lesson so far is that customers expect proper barista coffee. “We will try more but we want to get the concept right first,” says Buck.
Tomorrow: Financial services and online/digital
As with most retailers, digital is at the heart of Sainsbury’s plans. The Crayford store is full of staff fulfilling online orders, each working zones in the store on six orders at a time, which are then consolidated at the back.
As they trundle round the shop, it all looks a bit low-tech and labour-intensive. But Sainsbury’s websites are to be replatformed over the next two years, and digital kiosks in stores, click-and-collect - which is already available in 160 stores - and an iPhone app are all on the agenda.
“We’re starting to think of digital as a wider concept,” says Shapland. “The two key game-changers in digital are going to be mobile and insight.” Coupe points out that the greater control online gives shoppers has encouraged the channel’s growth during the downturn.
Understanding how the customer behaves online will be central to the digital strategy. The aim is to create one database that will create a single view of the customer, enabling Sainsbury’s to personalise offers and encourage shoppers to buy more services from it.
The frequency with which customers shop with grocers and the insight from Nectar card data should give Sainsbury’s an advantage in this field. “We’ve got a lot of investment and resource going into it [digital],” Shapland says.
One particular area where this insight is likely to be deployed is financial services. They might not be a glamorous aspect of retailers’ business, but Shapland sees great growth potential in Sainsbury’s Bank, ranging from initiatives such as travel money click-and-collect, which is launching soon, to a fuller range of financial products.
The finance business has moved from making a loss to a profit of £18m in the first half and, with the benefit of a full banking licence through its tie-up with HBoS, has benefited from consumers greater confidence in retail brands at the expense of the better known banks. It also sells insurance as an introducer, and makes money through ATMs and bureau de changes.
“It took a while to work out how to do banking properly,” says Shapland. “We think we’ve done that now.” He observes that financial services customers are much more loyal, and wants to use Nectar rewards to help lock in shoppers across financial services and the weekly shop.
The future: International and new goods and services
Sainsbury’s has been a UK business since the sale of Shaw’s in the US so it’s little wonder that its possible return to international markets has been the source of excitement.
Shapland confirms international stores are on the agenda, and the focus will be on “developing markets with retail capacity”. The company’s team in China is nine months into the project of scoping the market there, which Shapland says was a natural place to start because Sainsbury’s already has a sourcing office there. Other fast growing emerging markets will be considered too.
But he insists it will be some time before the strategy takes shape and even longer before it makes a difference to the business. “It won’t be anything to worry about in the next two or three years, and it will be 10 years before it’s anything material,” Shapland says.
In the UK, he sees big growth opportunities in moving into new goods and services. Along with financial services, energy, pharmacy and Fresh Kitchen are all new, recent ventures that have taken the brand beyond its core business.
He highlights a deal with British Gas as an example of stretching the brand into new fields. The two launched a partnership in February with the aim, Shapland says, of “creating a really simple energy service”. Nectar again is being used as a driver to encourage customers to the brand, and energy centres will be set up in stores to promote the service. The relationship is a five-year partnership, and aims to help customers go green.
Investments in energy and financial services may lack the glamour of international ventures and new store formats, but they show the breadth of Sainsbury’s aims to build on its relationships with its customers and use the power of Nectar to lock in their loyalty.
None of it may be revolutionary in the broader retail scheme but, for Sainsbury’s, the changes will mark the move from recovery into expansion mode.