Trading with Sainsbury's - Full year 2016/17 results and strategic priorities - IGD.com
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Trading with Sainsbury’s
Full year 2016/17 results and strategic priorities
May 17
© IGD 2017
Introduction This insight report was prepared by:
Nick Gladding Nick specialises in providing insight
Senior Retail Analyst on retailers’ strategic development
and sector trends, and leads IGD’s
nick.gladding@igd.com
UK market and channel forecasts.
@nickgladding He also delivers bespoke
presentations and projects to IGD’s
@RetailAnalysis customers.
2016/17 was a landmark year for Sainsbury’s
that included the acquisition of the Argos and
Habitat brands and the launch of four new
priorities to frame strategy in the years
ahead.
In this report we review Sainsbury’s newly
released annual results and explore the
opportunities created for suppliers from its
drive to create a differentiated proposition
that meets changing shopper needs.
© IGD 2017 Page 2
Results in brief
+14.1% -0.6% 16.1%
Group retail Sainsbury’s Market
sales LFL share1
A transformational year
Group retail sales increased by 14.1%,
(inc.VAT, ex fuel), driven by a 14.5% Sainsbury’s four strategic priorities
contribution from Argos.
Sainsbury’s LFL sales declined by 0.6%.
The rate of LFL decline moderated from -
1.0% in H1 to -0.1% in H2, as price deflation
eased.
The £1.1bn Home Retail Group
acquisition has made Sainsbury’s one of
the largest non-food retailers with £6bn of
clothing and general merchandise sales.
Newly acquired Argos achieved strong
LFL growth of 4.1% in H2 with LFL growth
of 20-30% for Argos stores located in
Sainsbury’s supermarkets that have been
open for more than a year.
Retail underlying profit fell by 1.4% to
£626m, reflecting lower LFL sales, Mike Coupe, CEO
investment in the customer offer and cost “This has been a pivotal year and we have made
inflation. significant progress delivering and accelerating our
strategy. Sainsbury’s Group offers customers market-
Underlying retail margin declined by 32
leading product choice, value and convenience,
basis points to 2.42%. Sainsbury’s has a
whenever and wherever they shop with us”
margin target of 3-3.5% over a three to five
year period.
© IGD 2017 Notes: Kantar Worldpanel market share is 12 weeks to 23.04.17. LFL is inc-VAT and ex-fuel Page 3
Channel
performance
Growth channels compensate for
decline through supermarkets
To support shoppers’ desire to shop more
frequently across different channels and
store formats, Sainsbury’s has stepped up
investment in online and continued to
expand its Local store network.
The growth of these channels and the Supermarkets -1.8% Convenience +6.5% Online +8.2%
continuing expansion of the discount sector
has put pressure on volumes through core To adapt to the gradual Convenience benefited Online sales were lifted
supermarkets, though Sainsbury’s expects it shift in shopper demand from the opening of a by the launch of a new
to remain the leading channel in grocery. away from full weekly net 33 new shops, half groceries app, the
shops in supermarkets, the number of the prior expansion of grocery
Sainsbury’s has been year, though sales click & collect and the
remodelling space at its growth only dropped launch of same day and
larger stores to better slightly (from 9%). The one hour delivery
align them with customer new stores included services. Sainsbury’s
requirements for speed, seven franchise also opened its first
flexibility and forecourts in purpose built online
convenience. During the partnership with Euro fulfilment centre to
year it opened only six Garages forecourts, increase capacity in
supermarketNine Elms s, extending Sainsbury’s London.
including the flagship, coverage in the North.
and closed two.
© IGD 2017 Source: Sainsbury’s, Total sales growth Page 4
Category
performance
Resilience in food
Against a backdrop of a highly challenging
grocery market, Sainsbury’s core food
business demonstrated resilience, benefiting
from targeted investments to make its
proposition more distinctive. Bold new ‘Food
Dancing’ advertising also helped Sainsbury’s
to build traction with younger and urban Food -0.5% Clothing +4.3% Gen Merchandise +2.4%
shoppers.
Despite a slight decline Sainsbury’s is now the Sainsbury’s is adjusting
Sainsbury’s non-food businesses
in sales a strong and sixth largest clothing its offer to reduce
demonstrated good growth and play an
differentiated food retailer in the UK by overlap with Argos and
increasingly important role to support footfall
remains at the heart of volume, with strong improve product
at its larger stores and are now
complemented by Argos. the Sainsbury’s positions in presentation in-store.
proposition. Major womenswear and New more regularly
developments in childrenswear, and refreshed ranges are
2016/17 included the opportunities for future helping to drive footfall,
completion of upgrades growth in menswear. as is greater activity
to the quality of 3,000 The launch of Tu around seasonal events
own brand products and premium womenswear such as Christmas and
the removal of multi- in September has Halloween.
buys. helped to grow basket
size.
© IGD 2017 Source: Sainsbury’s, Total sales growth Page 5
Key areas of
focus for
Sainsbury’s
1 Renewing the food proposition
2 Upgrading own label
3 Renewing supermarkets
4 Innovating with convenience
5 Online expansion
6 Integrating Argos
© IGD 2017 Page 6
Renewing the
food
proposition
To enhance its appeal with customers
Sainsbury’s continues to focus investments
in price or quality, depending on the
importance of these factors to its customers
at category level.
For commodity products and everyday
essentials Sainsbury’s has reduced prices
significantly. Chicken fillets and cheese for What next?
instance are about third cheaper than a few
years ago.
For speciality products, Sainsbury’s mainly 70 range reviews are planned for the
invests in adding quality and utility to rest of 2017/18, covering 40% of
products to provide unique reasons for sales, to build on the 53 range reviews
shoppers to choose Sainsbury’s. carried out since the start of Q3, to
create a more distinctive offer.
Linked to this Sainsbury’s has driven its
‘value simplicity’ programme, to put more Reducing spend on deal
emphasis on lower and more stable prices The removal of multi-buys last year
and make the business less dependent on was a key factor in a six percentage
promotions. point fall in promotional participation
last year. The move has helped
increase availability, improve supply
chain efficiency and cut wastage.
© IGD 2017 Page 7
Upgrading own
label
Targeting snacking occasions ‘Deliciously FreeFrom;
Snacking sales have grown strongly Sainsbury’s has doubled the number of
since the launch last summer of products in the newly relaunched range
Sainsbury’s has completed its programme to Sainsbury’s On the Go range. This £8m to include fresh, frozen, chilled and
upgrade the quality of 3,000 own brand investment introduced new sandwich and ambient ranges. Sainsbury’s has also
products but will continue to make targeted bread options, salads and sushi. The become the first supermarket to offer
investments in product quality. range was further enhanced this May gluten-free freshly baked bread in-
with the addition of Asian buns, gluten- store.
Investment has been concentrated on the free sandwiches and vegan options.
core by Sainsbury’s range, which achieved
2% volume uplifts over the year.
What next?
More investment in fast growing
categories is likely as Sainsbury’s
continues to adapt its offer to changing
customer demand.
Expect further action to remove salt
Prepared vegetable innovation and sugar from products as part of
Sainsbury’s drive to help customers
Following strong demand for courgetti lead healthier lives.
(courgette spaghetti) and boodles
(butternut squash noodles). Sainsbury’s has also begun trialling
Sainsbury’s has launched eight more new budget fresh produce range,
lines this year that have helped to ‘Greengrocer’s Value Selection’ to
drive double digit growth in prepared replace basics.
vegetables category.
© IGD 2017 Page 8
Renewing
supermarkets
Argos Sushi Gourmet and Patisserie Valerie
Sainsbury’s now has 59 Argos digital Patisserie Valerie cakes now strengthen
Sainsbury’s repurposed around 250,000 sq ft stores in its supermarkets and 207 the offer at 12 in-store counters,
of space in 2016/17, following through on a digital collection points. To date these presented in the luxury brand’s own
2014 pledge to make better use of under relocations have created 1-2% halo boxes. Sainsbury’s also reports
traded space at 25% of its portfolio by 2019. uplifts for Sainsbury’s food and non-food encouraging results from its 20 branded
sales. sushi concessions.
Relocating Argos stores to Sainsbury’s
supermarkets and enhancing the clothing
and general merchandise offer are key parts
of this strategy and Sainsbury’s is also What next?
working with external partners to make better
use of store space, such as Sushi Gourmet,
and most recently, Patisserie Valerie. Sainsbury’s is on track to open a total
of 250 Argos digital stores in its
With basket size in decline, Sainsbury’s is supermarkets within three years with
also making macro space changes to to the pace of the programme influenced
make stores more convenient for changing by leases expiries on high street
shopper missions through its new Foodhall stores.
theme. Its commitment to retaining food at Habitat
10 Mini Habitat stores will open in
the heart of its offer is also being Eight Mini Habitat stores have opened 2017/18
strengthened by the bold new food dancing to date to support Habitat’s multi-
campaign. channel business strategy, 30 more stores will host sushi
strengthening Sainsbury’s home offer. counters by year end, bring the total to
50.
© IGD 2017 Page 9
Innovating with
convenience
Slowing expansion Euro Garages
Sainsbury’s opened 41 new Eight forecourt stores have now opened
Sainsbury’s convenience business now convenience stores and closed eight at sites owned by Euro Garages in the
delivers £2.5bn of annualised sales, up over in 2016/17, half the net increase of north of England. Franchising offers
6% on 2015/16, and achieves positive like- the previous year. In total it now Sainsbury’s a low risk model to reach
for-likes. operates 806 Local stores more shoppers in areas where it under
indexes.
Sainsbury’s benefits from a high quality
estate, biased towards London and the
South-East and metropolitan areas. This
helps sales densities at its Local stores to What next?
generally exceed those of its main
competitors.
Sainsbury’s plans to open c.25 more
As the convenience channel has matured, convenience stores in the year ahead
Sainsbury’s has opened increasingly but will maintain rigorous return on
compact stores, whose range needs to be investment criteria to maintain the
skilfully curated to maximise traction with quality of its estate.
local shoppers.
Relevant ranges While it is too soon to gauge the
success of its tie-up with Euro
Range selections are increasingly Garages, Sainsbury’s is optimistic
tightly tailored to local catchments as about the potential to franchising to
Sainsbury’s takes on more smaller extend its reach and is open to
store units. working with new partners.
© IGD 2017 Page 10Online
expansion
Grocery app Same day delivery
Over 10% of orders are now Same day delivery is now offered from
Sainsbury’s grocery online sales grew by 8% received through Sainsbury’s 29 stores across the UK and
to reach £1.3bn of annualised grocery sales. groceries app, which was launched Sainsbury’s is trialling one hour delivery
last summer, and helps to deepen to parts of West London through its
Orders grew by 12% to 276,000 per week the loyalty of online shoppers. Chop Chop trial cycle delivery service.
and average order size dropped.
A new picking system has been introduced to
speed up order assembly and deliver fresher
products to customers. What next?
The opening of Sainsbury’s first online
Sainsbury’s will continue to focus on
fulfilment centre gives it vital extra capacity in
driving profitable growth in online,
London where it expects online sales to
rather than driving sales growth.
double over the next eight years.
More experimentation and a wider
rollout of rapid delivery options is likely
to counter the challenge from Amazon
Click & Collect Prime Now.
While still a small part of Sainsbury’s Couponing through Argos could be an
online business, grocery click & collect effective tactic to grow Sainsbury’s
now operates from around 150 sites online customer base.
and provides crucial additional
capacity at peak periods. Alibaba’s Tmall platform in China
continues to offer opportunities for
own brand exports.
© IGD 2017 Page 11Integrating
59
Argos £3.2bn +4.1%
H2 sales Digital
Argos sales growth stores now
trading
Argos Digital stores
Integration proceeding at pace
Stores that have been open for more than a year are
Argos is performing well both commercially delivering sales growth of 20-30%. There is also a halo
and operationally, delivering an underlying benefit to grocery sales at host Sainsbury’s stores of 1-2%.
profit contribution of £77m. Relocating stores to Sainsbury’s supermarkets is also
driving availability at Argos availability and making stock
Sainsbury’s focused on delivering the holding more efficient.
synergies outlined in its investment case at
the time the acquisition was announced and is
confident with the Argos business model. Mobile drives digital growth
Sainsbury’s now expects to conclude its Argos is now the third most visited website in the UK,
synergies plan six months earlier than with mobile visits up from 66% to 76% of the total over
originally stated, in March 2019. By then 250 the last two years. Fast Track delivery within four hours
Argos stores at Sainsbury’s supermarkets is a unique strength for Argos, with sales up 59%. Fast
should have opened. Track collections sales are up by 48%.
Significant further opportunities
Sainsbury’s sees many additional opportunities beyond
.
those set out in its investment case at the time the
merger was announced. Argos’s two man delivery
service for instance could allow it build its position in
unconsolidated categories such as furniture. Growing
international sourcing is another opportunity.
© IGD 2017 Source: Sainsbury’s, Argos sales, inc. VAT and financial services Page 12Our view Less than a year on from completing its landmark acquisition of
the Argos and Habitat brands, Sainsbury’s is making good progress
towards its goal of creating a leading multichannel food general
merchandise, clothing and financial services retailer.
While it is still early days, Argos is already delivering
encouraging results, both commercially and operationally. It offers
exciting opportunities for long term growth as well as more immediate
benefits to Sainsbury's stores as its relocation programme progresses.
Sainsbury’s food proposition is becoming more clearly
differentiated with a distinctive offer, now underpinned by
increasingly innovative own brand products. In a challenging
market, adding value and utility to its product offer should drive
customer loyalty and create unique reasons for shoppers to choose
Sainsbury’s.
Sainsbury’s investment in online and convenience will offset the
expected continuing fall in supermarkets contribution to its sales
mix. Franchising offers a low risk way to extend Sainsbury’s
convenience footprint further while continuing investment in online will
strengthen this channel further.
Sainsbury’s now offers shoppers a much clearer value
proposition, following the removal of multi-buys and a dialling down
of promotions. These actions should enable Sainsbury’s to continue to
invest in price in products that matter most to its customers, deepening
customer loyalty.
New thinking at supermarkets, including an overhaul of counters,
6 the re-working of the non-food offer and working with new
partners provides Sainsbury’s with plenty of options with which to
upgrade its store estate and make itself more relevant to shopper
missions.
© IGD 2017 Page 13Want to know more?
The IGD Sainsbury’s Trade Briefing
This event is a great opportunity for current and potential Sainsbury’s suppliers to learn how Mike Coupe and the senior team are
‘Building a new Sainsbury’s Group’.
The morning plenary will provide a complete corporate and commercial update. In the afternoon, there will be key business unit
breakouts where Sainsbury’s Directors will share practical, best practice examples of how they are putting the strategy into action, and
what they are looking for from suppliers in 2017/18.
We’ll conclude our day with topic based break-out sessions, and an opportunity for you to book 1-to-1 meetings with the Sainsbury’s
buying team.
Need something else? BOOK HERE
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