It’s a year since he unveiled his plan for Making Sainsbury Great Again. Here, JS boss Justin King tells Julian Hunt that the business is on track to deliver
Okay, Mr King, you are one year into a three-year turnaround plan, how do you rate your performance out of 10? Sainsbury chief executive Justin King is having none of it. “That’s not for me to answer. It’s up to our shareholders to judge,” he says. “But in terms of what we said we would do last October, I think we stand up on all the key measures. We have materially changed availability, our price position and our service in stores. I think we have changed the business out of all recognition. More importantly, our customers agree.”
All of that was very much in evidence in the trading statement issued a few weeks ago, when Sainsbury was able to reveal second quarter sales up 6.6% and like-for-like sales ahead by 2.8% excluding petrol - the third successive quarter of growth. That means the business is outperforming the market, catching arch rival Asda in the process, which allows King boldly to claim Sainsbury as the country’s fastest-growing retailer in terms of food sales.
Impressive stuff. But King cautions: “We are proud of what has been achieved, but we’re only a year down the track.”
He is quick to remind you that the first stage of his turnaround plan was always about short-term fixes and getting the basics right in the business. “We are now running with the pack,” says King. But plenty of graft remains, particularly in back office areas like supply chain and IT (witness this week’s split with Accenture). Then there are the cultural changes being made under the auspices of the Try Something New Today rebranding, says King, pulling from his pocket one of the new ‘TRY’ cards now being issued to staff.
Nevertheless, the progress made by the business to date would appear to support King’s assertion that there is always going to be room for a mass market grocer with universal appeal. Many commentators have long argued that, in a polarised grocery market, Sainsbury was in danger of being caught in the middle ground, between the price-led retailers and those focused on premium. Not so, says King. “I said from day one that the big space in the middle was not a bad place to be - provided you did your job well. But we were not doing that.”
So, as well as slashing prices, boosting service and improving availability, King set about refocusing Sainsbury’s offer on its core values of quality and value. Ranges have been revamped, extra emphasis put on fresh, promotions given more oomph, exciting and neat marketing ideas such as Active Kids developed; everything to ensure customers are not compelled to shop elsewhere.
Clearly, all the hard work is paying off. The good sales figures come on the back of a jump in customer transactions, which are up 500,000 to 14.75 million a week.
King says this is partly due to the fact that loyal Sainsbury shoppers are visiting more often and spending more in stores - as they now see products on shelves at prices that are no longer bonkers.
And he says Sainsbury has undoubtedly picked up ex-Safeway shoppers too. “We think there has been a lot of churn as customers come back into the market and say, ‘Where is best for me to shop?’ Our focus on fresh food and range made us the best place to come and we have grabbed our fair share of that. And if Morrisons had taken over Safeway today, we would have been in even better shape to capture consumers.”
But are things about to get much tougher for Sainsbury? King may be ahead of the curve when it comes to his ambition of adding £2.5bn to Sainsbury’s sales line by March 2008, but as the economy slows, food retailers could be in for a rough time.
“The market is tough, undeniably tough, because the consumer is being squeezed. But we have every reason to be optimistic about trading in that tougher environment,” he says. “My experience is that when consumers do batten down the hatches in September, October or November - and they clearly are - then they tend to splash out at Christmas. That means when they come to Christmas shopping they will want to buy the best they can and that’s how we have set out our stall this year.”
The state of the economy will be even more of an issue in the quarter after Christmas when Sainsbury starts coming up against some tougher sales comparisons.
King shrugs. “We have just got to do better next January when consumers batten down the hatches again,” he says. “If we have growth on growth then we can prove that we have genuinely turned a corner. It all comes full circle back to our plan. Everything we put in that plan allows us to cope with a tighter environment.”
There are other issues for the business to tackle in the next year or two, such as deciding the future of the Nectar loyalty card scheme, improving online service, tackling non food and growing space.
“On Nectar there is nothing to update,” says King. “We are coming up to a contract renewal and are focused on making much better use of its data. We are some years behind others, particularly Tesco, but that’s a big opportunity for us. The more effective we make it, the better it is for our business.”
The story for online is pretty similar. “We stopped marketing and rolling it out about a year ago and it is now growing faster than for a long time because we are doing a pretty good job at the doorstep.”
As for non food, he says Sainsbury had to address three things: doing a better job in those core areas that are now considered to be a normal part of the weekly shop, such as greeting cards and DVDs, developing its ranges and then adding the space required to fully exploit its potential.
“We are doing a better job in core areas. Just look at big book launches such as Harry Potter or home entertainment products such as the new Robbie album, where we are taking a good share of sales,” says King. As for developing ranges, he points to the Tu range, which he says has been a “roaring success”.
The big issue for non food, and the business generally, is getting new space in the current planning environment.
King is sanguine about that challenge. He says Sainsbury’s turnaround plan calls for a 2% annual growth in sales area and points to the fact that the chain has 50 stores with actual or outline permission for extensions, as well as 131 stores that have not benefited from any investment for years and are only now being refitted. Besides, it has also bought a clutch of stores from Morrisons.
Nevertheless, King recognises that Sainsbury needs to get more sites in its pipeline so that they are ready to develop in the next three to five years. So the priority is persuading councils and developers that Sainsbury should be their supermarket of choice when they are considering the redevelopment plans - particularly if the only alternative is yet another Tesco.
There is one final challenge, of course: rebuilding profit, which has inevitably been hit by the need to invest in the turnaround. King says the plan is to deliver the benefits, in terms of profit, in the second half of the next financial year. And, he says, shareholders understand that it cannot come sooner. “They want us to do the right things for customers. If we let profit fall through before we have done a great job for customers, it’s clear from our history what happens.”
But if he does deliver on that promise, and keeps the sales line moving in the right direction, there’s no doubt shareholders will judge his performance as a 10 out of 10.
Okay, Mr King, you are one year into a three-year turnaround plan, how do you rate your performance out of 10? Sainsbury chief executive Justin King is having none of it. “That’s not for me to answer. It’s up to our shareholders to judge,” he says. “But in terms of what we said we would do last October, I think we stand up on all the key measures. We have materially changed availability, our price position and our service in stores. I think we have changed the business out of all recognition. More importantly, our customers agree.”
All of that was very much in evidence in the trading statement issued a few weeks ago, when Sainsbury was able to reveal second quarter sales up 6.6% and like-for-like sales ahead by 2.8% excluding petrol - the third successive quarter of growth. That means the business is outperforming the market, catching arch rival Asda in the process, which allows King boldly to claim Sainsbury as the country’s fastest-growing retailer in terms of food sales.
Impressive stuff. But King cautions: “We are proud of what has been achieved, but we’re only a year down the track.”
He is quick to remind you that the first stage of his turnaround plan was always about short-term fixes and getting the basics right in the business. “We are now running with the pack,” says King. But plenty of graft remains, particularly in back office areas like supply chain and IT (witness this week’s split with Accenture). Then there are the cultural changes being made under the auspices of the Try Something New Today rebranding, says King, pulling from his pocket one of the new ‘TRY’ cards now being issued to staff.
Nevertheless, the progress made by the business to date would appear to support King’s assertion that there is always going to be room for a mass market grocer with universal appeal. Many commentators have long argued that, in a polarised grocery market, Sainsbury was in danger of being caught in the middle ground, between the price-led retailers and those focused on premium. Not so, says King. “I said from day one that the big space in the middle was not a bad place to be - provided you did your job well. But we were not doing that.”
So, as well as slashing prices, boosting service and improving availability, King set about refocusing Sainsbury’s offer on its core values of quality and value. Ranges have been revamped, extra emphasis put on fresh, promotions given more oomph, exciting and neat marketing ideas such as Active Kids developed; everything to ensure customers are not compelled to shop elsewhere.
Clearly, all the hard work is paying off. The good sales figures come on the back of a jump in customer transactions, which are up 500,000 to 14.75 million a week.
King says this is partly due to the fact that loyal Sainsbury shoppers are visiting more often and spending more in stores - as they now see products on shelves at prices that are no longer bonkers.
And he says Sainsbury has undoubtedly picked up ex-Safeway shoppers too. “We think there has been a lot of churn as customers come back into the market and say, ‘Where is best for me to shop?’ Our focus on fresh food and range made us the best place to come and we have grabbed our fair share of that. And if Morrisons had taken over Safeway today, we would have been in even better shape to capture consumers.”
But are things about to get much tougher for Sainsbury? King may be ahead of the curve when it comes to his ambition of adding £2.5bn to Sainsbury’s sales line by March 2008, but as the economy slows, food retailers could be in for a rough time.
“The market is tough, undeniably tough, because the consumer is being squeezed. But we have every reason to be optimistic about trading in that tougher environment,” he says. “My experience is that when consumers do batten down the hatches in September, October or November - and they clearly are - then they tend to splash out at Christmas. That means when they come to Christmas shopping they will want to buy the best they can and that’s how we have set out our stall this year.”
The state of the economy will be even more of an issue in the quarter after Christmas when Sainsbury starts coming up against some tougher sales comparisons.
King shrugs. “We have just got to do better next January when consumers batten down the hatches again,” he says. “If we have growth on growth then we can prove that we have genuinely turned a corner. It all comes full circle back to our plan. Everything we put in that plan allows us to cope with a tighter environment.”
There are other issues for the business to tackle in the next year or two, such as deciding the future of the Nectar loyalty card scheme, improving online service, tackling non food and growing space.
“On Nectar there is nothing to update,” says King. “We are coming up to a contract renewal and are focused on making much better use of its data. We are some years behind others, particularly Tesco, but that’s a big opportunity for us. The more effective we make it, the better it is for our business.”
The story for online is pretty similar. “We stopped marketing and rolling it out about a year ago and it is now growing faster than for a long time because we are doing a pretty good job at the doorstep.”
As for non food, he says Sainsbury had to address three things: doing a better job in those core areas that are now considered to be a normal part of the weekly shop, such as greeting cards and DVDs, developing its ranges and then adding the space required to fully exploit its potential.
“We are doing a better job in core areas. Just look at big book launches such as Harry Potter or home entertainment products such as the new Robbie album, where we are taking a good share of sales,” says King. As for developing ranges, he points to the Tu range, which he says has been a “roaring success”.
The big issue for non food, and the business generally, is getting new space in the current planning environment.
King is sanguine about that challenge. He says Sainsbury’s turnaround plan calls for a 2% annual growth in sales area and points to the fact that the chain has 50 stores with actual or outline permission for extensions, as well as 131 stores that have not benefited from any investment for years and are only now being refitted. Besides, it has also bought a clutch of stores from Morrisons.
Nevertheless, King recognises that Sainsbury needs to get more sites in its pipeline so that they are ready to develop in the next three to five years. So the priority is persuading councils and developers that Sainsbury should be their supermarket of choice when they are considering the redevelopment plans - particularly if the only alternative is yet another Tesco.
There is one final challenge, of course: rebuilding profit, which has inevitably been hit by the need to invest in the turnaround. King says the plan is to deliver the benefits, in terms of profit, in the second half of the next financial year. And, he says, shareholders understand that it cannot come sooner. “They want us to do the right things for customers. If we let profit fall through before we have done a great job for customers, it’s clear from our history what happens.”
But if he does deliver on that promise, and keeps the sales line moving in the right direction, there’s no doubt shareholders will judge his performance as a 10 out of 10.
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