Sainsburys now has more Local stores than supermarkets

Sainsbury's now has more Local stores than supermarkets

The development of digital platforms has transformed how retailers interact with consumers in the UK. To Sainsbury's, the interaction between physical and digital platforms is key to delivering a full consumer experience. This requires a portfolio that spans the spectrum of formats, Kevin Barrett Sainsbury's director of space and formats, tells just-food.

The "space race" in UK grocery retail has been declared over by many. In the face of investor pressure for bottom line improvements, the likes of Morrisons and Tesco are looking to less capital intensive methods of building sales and boosting profits in the country.

Sainsbury's, however, has adopted a different approach and in the coming year, the company is holding its investment in new space broadly steady.

"The future of food retailing is a combination of medium shops, big shops, online services and small shops," space and formats director Kevin Barrett tells just-food.

The group plans to open 125 new convenience stores and 12 new supermarkets, a distribution centre in Daventry and one new dark store in Bromley-by-Bow. In contrast to larger rival Tesco, who is grappling with turning around its big box stores that have fallen out of favour with UK consumers, the UK's second largest retailer also plans to increase selling space in its existing supermarket portfolio and Sainsbury's is plotting six extensions in the coming year as it works to build "destination" shops.

"We believe we can create destination services and product areas in a 60,000 square foot store. Because we expanded in the '70s, when we build 30-40,000 square foot stores, extensions continue to be profitable for us. It is just an accident of history, but that is the environment where we can continue to expand those larger shops," Barrett says. "We look at what the products and services that can't be digitised and therefore create a destination shop."

While Sainsbury's is investing in increasing space for its larger supermarkets, the majority of openings in the coming years will be under the Sainsbury's Local convenience banner. Convenience sales are growing at 18% year-on-year and for this reason growing Sainsbury's convenience footprint is "key".

Convenience sales are underpinned by demographic drivers such as urbanisation as well as changing shopper habits, Barrett says. According to his assessment, consumers are tackling issues such as food waste by making more frequent shopping trips with smaller basket sizes.

In January, Sainsbury's opened its 594th Local outlet. This was the point at which the size of Sainsbury's convenience portfolio overtook its supermarket operations in terms of numbers. The group currently operates 600 convenience stores and plans to have a total of 1000 sites in its convenience estate by 2016.

But Sainsbury's is not alone in its plans to open new c-stores and competition for town centre cites is growing.

"It is becoming more competitive. But actually we have been exploring for instance, a traditional local store is 3,000 square foot. Actually now our smallest store is 1200 square foot. The smaller you go - and understanding how you can get the right product into the right store efficiently - allows you to broaden the properties that you then are able to start to scope out," Barrett reveals.

Reducing space in an already limited format has a significant impact on ranging, he concedes. However, through its use of loyalty card data the group believes that it can tailor its offering with enough precision to make effective use of the space on hand.

"One of the interesting debates we had five years ago is that we didn't want to go too far, too small, because that wouldn't deliver the full customer offer. But the beauty with the nectar card is that we know exactly what customers are wanting. We can then start to plot different areas of the country to say 'this is the kind of thing they would like'. We feel increasingly confident that we can put the range that is right for customers into smaller and smaller shops."

Sainsbury's isn't just reinventing how it defines the convenience store. It has re-imagined convenient shopping. Central to this will be the interaction between digital and physical retailing, Barrett predicts.

"The idea of redefining convenience is making sure that as a customer goes into a supermarket could we give them a service that says: 'I've come in to buy Sunday lunch, there is a great deal on soap powder and I don't really feel like carrying that home - I'll add that to my online order via a mobile device'. [Later that consumer] then gets a text message from that says 'could you pick up ingredients for a cake?' They could then order those online and pick it up at the convenience store on the way home."

According to this model, while online and convenience are going to see the lion's share of growth in coming years, Sainsbury's needs a full portfolio to offer full service, Barrett says. "Supermarkets have a role," he insists.

"How are customers going to use that in 5-10 years? I am not going to be able to predict. Do I think that there will be rows and rows of beans and soap powder in the way we are used to seeing now? Probably not, because I think technology we will be able to do that more efficiently to deliver it to people's homes. What do I use that space for? That is the interesting challenge."

In its bid to offer a convenient shopping experience, Sainsbury's has focused on making it easier for consumers to navigate its larger supermarkets, widening aisles and linking product areas. The company is also examining digital technologies that can be used to augment the physical shopping experience.

"We [UK retailers] are all looking at these sorts of technologies. The idea that you can convert your shopping list into a navigable map round the shop, so your smart phone tells you 'avocados next'. That is the ability to make it ever more convenient for customers to go round the shop," Barrett explains.

Convenience has come to mean a fully integrated shopping experience that brings online and physical retailing together for the consumer.

"The technology is there. There are plenty of examples of small retailers who have done it very well. The question is how do you do it at scale. Ten years ago we were one of the first retailers to deliver groceries online. We backed a web platform that turned out to be number three in the market place and is no longer in existence. We have had to re-platform into what we think is the most flexible and up-to-date architecture that will allow us to do exactly those sorts of things. To create an app that sits on your smart phone and allows you to create a Sainsbury's user experience that is across channels, incorporates the coupons you are getting as well as the experience you get in store, as well as online.

"The tech is there. We have focused on creating the infrastructure that allows us to be as flexible as possible because I have no doubt that there are one if not two technologies that I have no idea what they are that will come and revolutionise the convenience shopping experience."

Developing this kind of experience - coupled with subscription models such as the Sainsbury's delivery pass - will have significant benefits in terms of consumer loyalty, Barrett predicts.

"We know that the more times a customer interacts with us, the more loyal they become and the more money they spend in their core channels. If a customer shops in a supermarket they will spend X. If they shop online as well, actually their supermarket spend plus online is more than what a supermarket customer or an online customer will spend. The more they interact with us the more loyal they become, as long as we deliver the experiences that keep them being loyal."