Sainsbury’s unveils new marketing plans as sales and profits drop

Sainsbury’s is to invest £150m in reducing prices, one of several changes to its marketing strategy, as it becomes the latest supermarket to join the price war amid falling sales and profits and increasing competition from the discounters.

Sales at stores open for more than a year fell 2.1% in the half year to the 27 September while total sales were down 0.3% to £13.9bn. Profit before tax declined 6.3% to £375m.

Mike Coupe, Sainsbury’s chief executive, says he expects like-for-like sales to be in decline for at least the next 18 months to two years as the grocery industry faces “once in a generation” changes in how consumers shop. This includes the rise of Aldi and Lidl but also the increasingly popular convenience and online channels.

The changes have impacted all the big four supermarkets, with Morrisons’ like-for-like sales down 6.3% in its recent results and Tesco’s falling 4.6 per cent. Asda is due to update on its results tomorrow (13 November).

Unveiling the results of his strategic review, dubbed “Evolving to win”, Coupe says Sainsbury’s brand strength means the changes will be an evolution of its strategy over the past 10 years to invest in products, value proposition, service and channels to market. However, he admits that Sainsbury’s will need to switch focus to halt the sales decline in a “difficult” trading environment.

“We have been talking to lots of our customers and colleague and what they want is a brighter, sharper Sainsbury’s, a better us. It’s all about evolution rather than revolution,” he adds.

Price cuts

Sainsbury’s will invest an additional £150m in price beginning “almost immediately” with around half of that falling in the second half of the year and the rest in the next financial year. That investment will be focused on product areas where Sainsbury’s believes it is “more difficult to differentiate” and that are heavily branded and more commoditised, where customers are more price led.

The £150m investment is much smaller than rivals’. Morrisons has already pledged to invest £1bn in price over the next three years, while Asda said last year it would invest £1bn in price and £250m in quality over the next five years. Tesco has already put £200m into price cuts and is widely expected to up that figure once new chief executive Dave Lewis has finished his review of the business.

Store estate

A review of Sainsbury’s store estate found that while 75% of shops are in the right location and the right size, around a quarter have under-utilised space. Sainsbury’s plans to use that space to expand its non-food and clothing business, which grew by 13% in the period, and partner with concessions as it has done with Netto.

“The death of the superstore has been greatly exaggerated but we can make our space better by using it for our mobile phone business, our clothing and trialling Netto stores, which might offer an opportunity for the future,” said Coupe.

Sainsbury’s plans to open around 500,000sq feet of space in each of the next two years, around half of which will be in convenience which saw sales increase 17% in the period. The supermarket will trial new store formats, such as “food to go” and “food for later” as well as new ways for customers to order and pick up their deliveries including click and collect.

Brand values

Despite the review, Sainsbury’s says it remains focused on its values and what differentiates it from other supermarkets. It will improve the quality of 3,000 of its own-brand products, investing in range, innovation, packaging and merchandising while maintaining its standards on ethical sourcing.

Sainsburys will also invest in IT to create a single customer view, building on its Nectar loyalty scheme. It hopes that by improving customer data and insight it can drive increased loyalty.

“We are confident about the future. Sainsbury’s is a fantastic business and brand that customers in the UK love and relate to and we can build on the basic strengths of the business,” says Coupe.

“Our strategy is evolving to address the continuing shifts in customer shopping patterns which we believe will lead to a greater emphasis on product quality and ease of shopping, and an increase in multi-channel shopping. By knowing our customers better than anyone else we will continue to serve them through multiple channels and in ways that make their lives easier, regardless of changes in the market.”