The Sainsbury’s brand is riding high at the moment. It sits in the top three for almost every metric in a list of 25 supermarkets on YouGov’s BrandIndex, from quality to reputation and satisfaction, and it is outperforming its competitors in terms of sales and market share growth.
That has been helped by recent marketing campaigns, including the “value of values” ads which highlight the quality and provenance of its own-brand ranges, and its festive ads which promoted its film “Christmas in a Day”, that have resonated with consumers.
While Sainsbury’s cannot afford to coast, the supermarket will build on King’s legacy rather than embark upon any big shift in direction.
Cantor Fitzgerald analyst Mike Dennis says: “The focus is on continuity and sustaining Sainsbury’s amid its outperformance of the wider market.”
When King joined Sainsbury’s back in 2004 he found a supermarket floundering after a failed turnaround by predecessor Sir Peter Davis. On the day Davis bowed out the firm issued a profit warning, the first of three over the next year.
It was hit by logistical problems from a failed IT project and had lost touch with customers. King’s strategy was to go back to basics and reconnect with shoppers by highlighting quality and value, a message that particularly resonated with consumers during the recession.
He has also been a very effective brand ambassador for Sainsbury’s, both as CEO and as a spokesperson. Cantor’s Dennis believes the supermarket will miss his experience in dealing with both analysts and the media.
On his watch, Sainsbury’s almost tripled its underlying profits to £756m in its most recent financial year. Annual sales have increased by £9.5bn and are expected to come in at £24.1bn for the current financial year, while its market share has increased from 15.6 per cent in 2004 to 16.8 per cent, according to figures from Kantar Worldpanel.
Sainsbury’s also continues to outperform its main competitors. Despite a poor Christmas by its standards, with sales growth slowing to 0.2 per cent, it easily beat rivals Morrisons and Tesco, which both posted sales losses. It has now seen 36 consecutive quarters of growth.
However, challenges are mounting. The supermarket space is more competitive than ever as both discounters and premium grocers eat into sales at the big four.
Plus the way consumers shop is changing, with people increasingly choosing to go online and to convenience stores to buy food. Sainsbury’s sales are growing, but that growth has slowed in recent quarters and its profit margins are under pressure.
Shore Capital analyst Clive Black says: “This is a tough market. The economic recovery might make it a little bit easier but there are industry-wide challenges in the rise of online, which has lower profit margins, increasing anti-corporatism and the rise of hard discounters and premium retailers.”
“This is a sensible time to move on. King has had a distinguished time at Sainsbury’s and it’s good to get out at the top,” Black adds.
Coupe is the man with the unenviable task of following in King’s footsteps. He is seen as the obvious choice to succeed King having joined Sainsbury’s just three months after his boss in June 2004.
Initially taking on the role of trading director, a job he also held at Asda, he became group commercial director in July 2010, responsible for marketing, among other things. His appointment is seen as a sign that it is “business as usual” at Sainsbury’s.
“Sainsbury’s has a consistent brand message and it would be nuts to give that up. Sainsbury’s has a reputation for high quality and standards, that is what it stands for,” says Black.
It is Coupe that announced plans for a marketing campaign that would take the “fight” about the value of values to rivals, namely Tesco. That battle will continue this year.
Sainsbury’s introduced the #valueofvalues strapline to its recent campaign for its relaunched Basics food range and it still awaits news on the judicial review it called last year after complaints to both the Advertising Standards Authority and an independent reviewer about Tesco’s price promise scheme failed.
Kantar Worldpanel director Edward Garner believes that Sainsbury’s must also maintain its message on pricing, highlighting quality and value without shifting perceptions so that it is seen as being “posher”.
“Sainsbury’s has proved that far from being in the ‘squeezed middle’, a well-managed middle is a good place to be. It needs to be careful that it doesn’t move too much in a Waitrose direction, it doesn’t want that price perception. Nor should it go down the aggressive pricing route and try to match the discounters. That would devalue the brand. Value and values is the Sainsbury’s name.”
Yet Cantor’s Dennis believes Sainsbury’s may well be drawn into a price war whether it wants to be or not.
“The biggest threat is from the battle between Asda and the discounters over who has the best price in the market. That will be difficult for others to ignore until consumer spending recovers.”
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