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Sainsbury's Updates On Strategy

Argos in-store concession 725 x 500

Sainsbury's has published information on its "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:

  • 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

  • Continue to build a world-leading Nectar loyalty platform offering personalised, rewarding and integrated loyalty and market-leading retail media capabilities

  • 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

  • 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

Our Commitments 

We are making eight commitments that the strategy will deliver by March 2027:

·      Food volume growth ahead of the market

·      Deliver profit leverage from sales growth

·      Customer satisfaction higher FY27 vs FY24

·      £1bn of cost savings over three years to FY27

·      Colleague engagement higher FY27 vs FY24

·      £1.6bn+ retail free cash flow over three years to FY27

·      Deliver our Plan for Better commitments

·      Higher return on capital employed

Profit and free cash flow guidance

  • Consistent with our commitment to deliver profit leverage from sales growth, we expect retail operating profit growth from the start of the plan

  • 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

  • Targeted incremental capital expenditure will be focused on high returning efficiency and growth investments

  • 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

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."

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

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. 

Information on the other three outcomes can be found here: 

Source : Sainsbury's

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07 February 2024

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