The battle families face to pay their bills has given Britain’s leading supermarkets an identity crisis. Budget chains Aldi and Lidl have moved upmarket. They have convinced affluent households that quality has improved and the majority of their customers are now middle class.
The question for Simon Roberts, the chief executive of Sainsbury’s, is whether he can achieve a similar effect, only in reverse.
Sainsbury’s has always been seen as a high quality grocer, but can he convince sceptical shoppers that his stores, with a reputation for being posh and pricey, really do offer good value these days?
Roberts, 51, has been an evangelist on this point since he took the top job in 2020. He has put his foot on the gas this month with a big ‘price-match’ promotion. More than 550 items are being benchmarked against German discount retailer Aldi, including more than 60 of its baby products.
Roberts seems a little obsessed with Aldi. Why does he compare Sainsbury’s with them all the time? ‘We benchmark against everyone,’ he says, though the ‘A-word’ does seem to crop up a lot.
Wooing the middle class: Simon Roberts skipped university and worked his way up from the shop floor
Over the financial year to March, Sainsbury’s will have invested £220million in cutting costs for its customers. That includes ‘Nectar prices’ which give big reductions to card holders, partly funded by suppliers, who are making an additional contribution.
Roberts – who skipped university and worked his way up from the shop floor – took the top job at a tricky moment.
His predecessor, Mike Coupe, had tried to push through a merger with Asda, which was scuppered by the competition watchdogs. The failure of that deal left Sainsbury’s to forge a future against cut-throat competition from Aldi, Lidl and Tesco.
Then came Covid, followed by supply chain bottlenecks, rampant energy prices and a cost of living crisis with runaway food inflation.
Roberts’ big idea was to go back to basics with a strategy he calls ‘Food First’. This means that any earnings – from any part of the Sainsbury’s empire, including Argos, the petrol stations, Tu clothing and Habitat – is invested back into the food business.
An update on the next phase of the strategy is due on 7 February but ahead of that there have been changes to the operating board. And last week Roberts revealed that Sainsbury’s Bank was up for sale after 27 years.
He refuses to be drawn further on the imminent strategy question, and whether other non-food businesses are under review, but says: ‘We have really begun to shift the profitability of our company.
‘This year we will have an out-turn of somewhere between £670million and £700million. Three years ago it was under £600million. Pre-Covid it was £586million.
‘We have saved £1.3billion of costs. We had to make some tough decisions. We decided not to run counters [for cheese, fish and delicatessen] any more, we decided to bring our standalone Argos stores in supermarkets, we reduced the number of office locations and consolidated them.
‘Anything that wasn’t about serving customers better, we went after. It was a case of save to invest.’
Since the launch of the Food First strategy, a total of £780million has gone into lowering prices.
The chain is also spending £200million on a 9 per cent pay rise for 120,000 hourly-paid staff. Their rate will rise to £13.15 an hour in London and £12 an hour elsewhere.
Roberts said: ‘By investing in keeping food prices low and by investing in our staff, we are delivering better service, which means better returns to shareholders.
‘It is a virtuous circle and we are going to accelerate. This is a big moment for us to really push on.
‘Three years ago, we recognised a fundamental issue. Customers wanted to shop at Sainsbury’s, but we were too expensive. The Food First strategy has been about addressing that. Until you get value right, nothing else works.’
To ram the message home, Sainsbury’s has launched a new advertising campaign. It stars Kevin McCloud, the presenter of the Channel 4 programme Grand Designs, which is notorious for lavish building projects where spending runs out of control. McCloud makes a cameo appearance at the till saying incredulously: ‘We’ve come in under budget.’
I meet Roberts in one of several kitchens at the company’s headquarters in Holborn, central London, where new recipes are devised and tested.
Claire Hughes, director of product development and innovation, explains that Sainsbury’s introduces up to 1,400 new products every year. Salted caramel, she says, is a perennial favourite along with sticky toffee flavours, including a rum liqueur. She and her team took a trip to the US and have come back with inspiration for hickory-smoked American barbecue flavours.
Roberts brandishes slides showing how the firm outperformed Tesco, Morrisons and Asda in the run-up to Christmas. Food inflation, he says, ‘was a really big challenge last year’. It has fallen sharply from a peak of 19.2 per cent in March, but was still 8 per cent last month. He rebuffs the suggestion there was an element of ‘greedflation’ – putting up prices under the cover of inflation in order to boost profits.
Roberts insists Sainsbury’s customers never saw inflation in their weekly shop as high as the official figures suggest because they were trading down to cheaper options and reducing food waste.
His approach may be working for customers, but what about investors? Shares have risen 17 per cent in the past 12 months. However, over the past five years they have been on a roller-coaster trajectory and are barely higher than in 2019.
Top of the investor register is the Qatar Investment Authority with a 14 per cent stake, followed by Czech tycoon Daniel Kretinsky’s Vesa Equity Investment on just under 10 per cent.
I suggest it’s all very well talking about lower prices in stores and higher wages for staff, but don’t shareholders like these want a bigger piece of the pie?
‘Looking at dividends for shareholders is part of that system, but you don’t start at that point,’ says Roberts. In 2019 and 2020 we were too expensive for customers and shareholders wanted a better return. How were we going to solve that? We have grown our profits in the past four years. We’ve done that by putting value for money and customers first, taking care of our staff and supporting the UK’s food system. Shareholders want sustainable returns.’
Asda was, after the abortive attempt to merge with Sainsbury’s, bought by private equity firm TDR Capital and the billionaire Issa brothers. As a result it has a massive £4.2billion debt heap. Morrisons was also taken over by private equity and loaded with debt.
‘We have next to no debt,’ says Roberts. ‘You need the agility to make choices and to prioritise investment in what matters to customers.’ Translated, I think that means if a supermarket chain is laden with debt and has to pay hefty interest bills, it won’t have as much flexibility to cut prices.
Roberts says: ‘When I came in as CEO we had quite a lot of debt. Our finance team has done a brilliant job working with us to bring our debt down.’
He is keeping an eye on supply chain issues caused by attacks on vessels near the Red Sea, which could affect goods including electronics, wines and clothing.
‘Most shipping companies are going round Africa which takes ten days longer or more, so it is more expensive. We are taking measures to stop costs feeding through to customers.’
He adds: The pandemic and the block on the Suez Canal meant we have developed a lot of new capabilities.’
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.