‘Big changes at Sainsbury's hint at next strategic phase’

Sainsbury’s came out of the Christmas peak period with a spring in its step. While, unlike rival Tesco, it did not upgrade profit expectations, grocery sales growth over the festive quarter of 8.6% was impressive – all the more so because it also increased volume ahead of the wider market.

The seasonal performance was a testament to the success of the ‘food first’ strategy initiated by chief executive Simon Roberts in 2020. The likelihood is that the next strategic phase will involve refining and intensifying that approach.

Roberts said as much when, this week, he revealed that Sainsbury’s plans “a phased withdrawal” from its banking operations.

He explained: “We have been clear since we launched our food first strategy that we would concentrate our efforts on our core retail businesses and [the] announcement reflects that strategic focus.”

“As consumers continue to spend cautiously, Roberts is likely to flag how he will further enhance value-for-money appeal”

How Sainsbury’s might ramp up its retail prowess will probably be at the heart of next month’s presentation.

There are lots of areas to go for. The grocer’s Nectar Prices scheme has proved a success – participation climbed to 90% on an £80 weekly shop during the Christmas quarter. Customers clearly like the programme and the appeal of such an approach was reinforced this week when the Co-op revealed it would ramp up its member price offers in a big change to its loyalty scheme.

Nectar Prices helped Sainsbury’s burnish its value credentials, as has the Aldi price match. As consumers continue to spend cautiously, Roberts is also likely to flag how he will further enhance value-for-money appeal.

Like Marks & Spencer, Sainsbury’s can also play a strong hand on quality. Sales of Taste the Difference products rose 13% over the quarter. Its reputation for good food alongside value can probably be leveraged further, as has been done so successfully at M&S.

New structure, new direction

The other important change at JS this week is on the people front. Paula Nickolds, the former John Lewis boss who has been Saisnsbury’s general merchandise commercial director for the last few years, is leaving to become chief executive of The White Company.

Nickolds is widely thought to have done a good job at Sainsbury’s but how the retailer has adapted the general merchandise team in light of her departure signals the direction it might take next.

Sainsbury’s has created a “new, more focused structure” for its operating board. Chief transformation officer Graham Biggart “will take on commercial responsibility for general merchandise and clothing across Sainsbury’s and Argos, in order to further accelerate both our transformation and our performance”, the company said.

“It’s a tribute to the current strategy that it can be developed further rather than needing a huge rethink”

Biggart is described by one person familiar with his work so far at Sainsbury’s as an expert at improving processes, which are at the heart of Argos’ business model. His new role is likely to indicate a further phase of tech-driven efficiency and improvements at Argos, where life was tougher over Christmas against strong comparisons to the previous year.

As retailers confront rising costs, the sort of skills and solutions progressed by Biggart can play a vital role in managing costs by finding better ways of doing things and protecting profitability in a tough environment when value remains at the forefront of consumer priorities.

The strategy update will no doubt highlight other levers that Sainsbury’s can pull. The development of its retail media business – a field growing across the industry – might be one example. It also sits nicely alongside Nectar and its data.

Sainsbury’s update on February 7 is unlikely to herald radical change but it’s a tribute to the current strategy that it can be developed further rather than needing a huge rethink.