7
February 2024
Sainsbury's Strategy
Update
THIS ANNOUNCEMENT CONTAINS
INSIDE INFORMATION
"Next Level Sainsbury's"
strategy to build on momentum and deliver enhanced returns for
shareholders
Key
Highlights
Our "Next Level Sainsbury's" strategy
builds on the success of the Food First strategy we launched in
November 2020. This put food back at the heart of Sainsbury's,
reset our competitive position and has created a strong financial
platform from which we will grow, invest in further strengthening
the business and deliver enhanced returns to shareholders. Our
"Next Level Sainsbury's" strategy will:
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Deliver further grocery market volume
share gains by bringing more of Sainsbury's food range to more
customers, becoming the first choice for food for more people,
continuing to attract more bigger basket primary
shoppers
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•
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Continue to build a world-leading
Nectar loyalty platform offering personalised, rewarding and
integrated loyalty and market-leading retail media
capabilities
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•
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Build on Argos's strengths in
convenience and value, growing frequency and spend through improved
range and relevance while also delivering further operating model
efficiencies
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Invest in our capabilities across
technology and infrastructure and deliver another £1 billion of
structural cost reduction, underpinning these objectives and
driving growth and efficiencies
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Our
Commitments
We are making eight commitments that
the strategy will deliver by March 2027:
· Food volume
growth ahead of the
market
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· Deliver profit
leverage from sales
growth
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· Customer
satisfaction higher FY27 vs
FY24
|
· £1bn of cost
savings over three years to
FY27
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· Colleague
engagement higher FY27 vs
FY24
|
· £1.6bn+ retail free cash
flow over three years to
FY27
|
· Deliver our Plan for Better
commitments
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· Higher return on capital
employed
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Profit and free cash flow
guidance
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Consistent with our commitment to
deliver profit leverage from sales growth, we expect retail
operating profit growth from the start of the plan
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•
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Capital expenditure will increase to
between £800 million and £850 million per year over the next three
years and we will make an additional £70 million investment in FY
2024/25 in our Smart Charge Electric Vehicle (EV) charging
network
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•
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Targeted incremental capital
expenditure will be focused on high returning efficiency and growth
investments
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•
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We continue to forecast retail free
cash flow of at least £500 million per year and now forecast at
least £1.6 billion over the next three years. We expect cash flow
to increase over the period as profits grow, in part replacing the
role of working capital benefits in earlier years. We expect
one-off cash costs associated with cost saving programmes to be
around £150 million over the course of the three years
|
Enhanced Returns for Shareholders - Progressive dividend
commitment and share buyback
The strength of our balance sheet and
cash generation will allow us to invest capital in targeted areas,
further strengthening our capabilities, driving growth and
efficiency and generating higher profits and returns. A higher
level of capital investment is balanced with a reinforced
commitment to strong free cash flow generation and stronger returns
for shareholders.
Specifically, we will now commit to a
progressive dividend policy from the start of next financial year
and the commencement of a share buyback programme, with £200
million of share capital to be bought back over the course of the
next financial year.
Simon Roberts, Chief Executive of J Sainsbury plc,
said:
"Our Food First strategy has
delivered on its promise over the last three years, making
Sainsbury's a stronger business with a much sharper position on
value and a major refocus on our innovation. Customers have
recognised the progress we've made, as our market share gains have
shown.
"Our Next Level Sainsbury's strategy
is about giving customers more of what they come to Sainsbury's for
- outstanding value, unbeatable quality food and great service.
Thanks to our scale, our brand and our people, we are in a unique
position to deliver for customers across Sainsburys, Argos and
Nectar.
"We're going to build on what's
driven our success since 2020. We're determined to be First Choice
for Food, ensuring more customers in more of our stores can enjoy
more brilliant Sainsbury's food. That means more space for our food
offer, while still delivering the general merchandise products
customers want from us. That way, not only will we find more ways
to delight new and existing customers, we will also continue
growing volume market share.
"While I'm proud of the progress
we've made to date, we're only just at the beginning of
rediscovering quite what this business is capable of. By taking
Sainsbury's to the next level, delivering for customers and
colleagues, we will also deliver enhanced returns for shareholders
through a share buyback and committing to a progressive
dividend."
We
make good food joyful, accessible and affordable for everyone,
every day
With an updated purpose, our Next
Level Sainsbury's strategy focuses on four key outcomes:
· First
choice for food
· Loyalty everyone loves
· More
Argos, more often
· Save
and invest to win
First choice for
food: Attract many more people to choose Sainsbury's as the place
they come to for good food - and play a leading role in creating a
sustainable food system in the UK
· More food
choice for more
customers
· Consistent
value, every day
· The
leader in freshness,
availability and
innovation
· A
complementary range of
relevant products and services
· A
more resilient UK food
system
More customers are doing more of
their grocery shopping at Sainsbury's1, increasingly
recognising the value that we deliver while continuing to choose us
for range, quality and service2. This is reflected in
growing numbers of bigger basket primary shoppers1 -
customers who do their main shop at Sainsbury's. We will continue
to offer consistently great value to customers and expect further
progress as customer price perceptions continue to catch up with
the significant change in price reality.
We are proud of our food range. Our
strengths in fresh food, range and innovation are at the heart of
Sainsbury's heritage and brand promise, Good Food For All Of Us.
However, we currently do not offer our full range to enough
customers in enough locations, with only 15% of our supermarkets
offering the full food range and some of our highest potential
stores not stocking the grocery range that customers expect of
Sainsbury's. This also impacts online range and perceptions of
availability as our online grocery orders are picked from
stores.
We will invest to bring more of our
range to more customers, particularly enhancing choice in fresh
food. We will focus on around 180 of these highest potential stores
over the next three years and we expect this unique opportunity to
be a key driver of grocery volume gains. We will create more space
for food in many locations by reallocating some space currently
occupied by general merchandise and clothing.
We will tighten the focus of our
general merchandise and clothing ranges in stores, aligning them
more closely to customers' grocery shopping missions and ensuring
ranges are relevant and irresistible at the right moments. In
Sainsbury's, only half of our primary customers buy our general
merchandise and clothing products, representing a significant
opportunity, particularly as we grow our numbers of primary
shoppers. In combination with higher profit densities from food,
this will generate significantly better sales and profit returns on
store space.
We expect to open around 75 new
Sainsbury's Local convenience stores over the next three years and
also have a significant space rebalancing opportunity to allocate
more space to food on the move ranges, the primary mission of most
customer visits.
We will build further on the
strength of our supermarket locations and customer traffic,
investing further in our Smart Charge ultra-rapid
EV charging network to increase our network of
reliable ultra-rapid charging bays to more than 100 stores by the
end of FY 2024/25.
We will invest in our capabilities,
driving improved productivity and freeing up more colleague time to
deliver great customer service, building on customer service
satisfaction scores that are already significantly ahead of our
competitors.
Sainsbury's has been at the heart of
the UK's relationship with food for more than 150 years, driving
progress across innovation, sustainability and welfare. This brand
heritage and our strong, long-term relationships with suppliers put
us in a strong position to play a leading role in creating a
resilient and sustainable food system in the UK, including through
our Plan for Better commitments.
Loyalty everyone
loves: Build
a world-leading loyalty platform - more personalised, joyful,
rewarding and transparent - for everyone
· Personalised,
rewarding and integrated loyalty
· Joy
and connection beyond
transactions
· World-leading
Nectar360 capabilities
· Strong
coalition of
partners
· Always
transparent use of data
Nectar has delivered ahead of our
plan and is playing an ever-larger role for customers and within
our business. The launch of Nectar Prices has transformed Nectar
sales participation, customer recognition of the value that Nectar
provides and value perception more widely, with customers saving an
average of £12 off a weekly £80 shop by shopping our Nectar Prices.
We now have more than 16 million digital subscribers and will
invest further in the Nectar app, continuing to build engagement
with the Nectar proposition and driving greater loyalty.
Nectar's personalised offers,
including Your Nectar Prices, are world-leading in their scale,
generating over 260 million different personalised offers each
week. More than one million customers shop using Your Nectar prices
every week. Your Nectar Prices is currently available to online and
SmartShop customers and we will roll this out more widely. We will
further invest in the integration of Nectar across all of our
digital platforms and into payment solutions and we will continue
to build our coalition of strong partners like British Airways and
Esso. This will build stronger digital engagement and deliver even
more value to Nectar customers.
Nectar360 operates the Nectar
coalition and manages Sainsbury's and Argos retail media services,
using its own insights and media expertise to connect the UK's
biggest brands with customers. Nectar360 is well positioned within
the fast-growing UK retail media market, with scaled first party
data and deep media capabilities. Nectar360 serves over 870 clients
directly and has built partnerships with the key agency groups. It
has a strong track record of delivering returns on their
advertising spend. We are investing in high return growth by
expanding our team and unifying our capabilities across instore,
onsite and offsite.
We are now forecasting an
incremental £100 million of Nectar360 profit contribution over the
three years to March 2027 (previous guidance was £90 million over
the four years to March 2026).
More Argos, more
often: Unleash and transform Argos around the three things that have
always made it brilliant - curated range, famously convenient
experience and great value - so more customers buy more complete
baskets more often
· Famous
for convenience
· Inspiring choice,
always great value
· Supercharged
digital capabilities
· Accessible and relevant
credit, care and services
· Next level
service, efficiency and stock flow
Argos has a structurally advantaged
low cost-to-serve operating model, backed by the scale of being
part of the UK's second biggest general merchandise
retailer3 and delivering a Click and Collect and
delivery proposition unmatched by any other general merchandise
retailer in the UK. We have further transformed this model in
recent years, reducing fixed costs by more than 300 basis points of
sales by reducing the standalone store estate and opening more
Argos stores inside Sainsbury's. We have made significant changes
to how and where we move and hold stock, driving efficiency but
also improving availability by making sure we have the right stock
closer to customers at the right time.
We have further to go in terms of
Argos store estate changes and we will also further refine the
store operating model, with clustered stores replacing a
one-size-fits-all approach. This better recognises the significant
variation in Argos store size and role. Early trials suggest
significant cost to serve reductions alongside improved customer
satisfaction as a consequence of better tailored ranges and
service. We also expect end-to-end productivity programmes to drive
significant improvements in working capital, availability and
supply chain efficiency.
Customers love and recognise Argos
for the convenience and consistently great value we provide and
this will remain at the heart of the Argos proposition. Half of UK
households shop at Argos every year and we have the third most
visited online retail website in the UK4. More than 70%
of sales start online, 70% of sales are collected in store and
nearly 70% of online Click and Collect orders are available for
immediate collection. However, customers visit Argos on average
only three times per year and we believe we have significant
opportunity through increasing awareness of the Argos service
proposition, and increasing frequency of visit and basket
spend.
We will extend range in selective
areas and enter some new product categories, often through
supplier-direct fulfilment, where we will sell more third party
products through a stockless operating model. We will invest
further in our website, app and customer relationship management
capabilities to elevate Argos's share of mind, encourage more
browsing missions and inspire customers to trade up within product
ranges, where we will continue to extend our range of premium
brands and will strengthen our design-led own label ranges. We
underperform competitors in terms of attachment rates, with
customers only buying between one and two items per basket,
offering a significant sales and margin opportunity.
Financial services will continue to
be an important part of the Argos proposition. Consistent with our
recent announcement on the future of our Financial Services
business, we expect to move to third party provision of Argos
financial services products, improving the range and quality of
payment solutions we can offer customers and increasing
penetration, currently 21% of sales.
Save and invest to
win: Save £1
billion and invest in transforming our capabilities - taking
another big leap forward in efficiency, productivity and customer
focus, continuing to build a platform for growth
· £1 billion
of structural cost reduction
· Modern, well-invested
technology platform protecting,
competing and unlocking the next
level
· Simplified,
automated more process-led
business
· Right-sized
organisation, set up to
win
Our strong financial position and
momentum means we are able to invest capital to strengthen our
business, with a very clear focus on unlocking efficiencies,
driving productivity, enabling growth and delivering higher
returns. We will invest in our technology infrastructure, where
more agile, flexible systems will both protect our current
propositions and accelerate the speed at which we can bring
improvements to customers. Investments in machine learning and
intelligent automation will bring greater speed and efficiency to
decision-making in areas such as pricing, proposition, range,
logistics and sourcing. Intelligent technology in areas of the
store such as checkouts and replenishment will benefit customers
and efficiency, freeing up colleagues to deliver better customer
service.
Our Save to Invest cost saving
programme was key to the delivery of our Food First strategy,
creating the fuel to invest in the customer proposition and reset
our value position. We made bold decisions on business structure
and propositions and changed the way the business approaches cost,
doubling the rate of cost saving delivery versus prior
years.
We will unlock a further £1 billion
of operating cost savings over the next three years, more than
offsetting cost inflation. High-returning investments in technology
and automation will drive big steps forward in efficiency -
automating, optimising and prioritising high volume tasks and
driving better forecasting. Productivity benefits will be delivered
increasingly through end-to-end programmes, making cost trade-off
decisions across a full cross functional chain of costs, rather
than through independent divisional programmes. We have already
successfully trialled and delivered benefits in end-to-end
transformation with a trial within one particular supermarket
cluster, where we have optimised range and streamlines the
operating model, through reduced deliveries, waste and
replenishment costs. We are now rolling this approach out to the
full cluster of around 90 stores.
We will continue to unlock
significant savings through projects such as the consolidation and
optimisation of our general merchandise distribution network. This
is already underway and will reduce working capital and double
productivity through using fewer, bigger depots and extending the
use of robotic automation.
Presentation materials from today's
Strategy Update will be made available later in the day on
the
Results, Reports and Presentations page of our website.
Enquiries
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Investor Relations
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Media
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James Collins
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Rebecca Reilly
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+44 (0) 7801
813 074
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+44 (0) 20 7695 7295
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Tim Fallowfield, Company Secretary
and Corporate Services Director, was responsible for the disclosure
of this announcement.
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1.. Nielsen panel data, Total FMCG
excl. Kiosk & Tobacco. Primary shopper numbers. 23/24: 44 weeks
to 6 January 2024
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2. CSAT Supermarket Competitor
Benchmark
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3. Kantar Worldpanel+, General
Merchandise Value Market Share, 52 weeks to 24 December
2023
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4. SimilarWeb traffic share, 12
weeks to 6 January 2024
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