The second largest supermarket group in the UK, Sainsbury today (18 October) released a statement ahead of an analysts’ meeting, which revealed that current sales and profits are in line with expectations. The announcement boosted the chain’s share value by 5%, from a figure which had been under-performing sector rivals by around a fifth this year.
In a meeting later today, the executive board of the company is expected to provide a progress report to investment analysts on the measures implemented to improve trading performance outlined at the end of May this year and how the business will be reinvigorated.
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Roger Matthews, finance director, revealed that the simultaneous strategic review of the Homebase DIY chain, which was effectively put up for sale at £1bn during August, was progressing but “likely to take a few more weeks to complete.”
Improving trading performance
Matthews added that the aim of the chain this year is to “stabilize” group profits before e-commerce, exceptional items and tax. To do this the group has embarked on a cost efficiencies program, which is expected to save £600m, improve like-for-like sales growth and produce “operating margins comparable with the industry leaders.”
A series of initiatives have also been implemented to improve the company’s fortunes. As well as the attempts to sell Homebase, the chain’s property portfolio has been restructured to exploit development opportunities. This has already saved £35m and a further savings of £300m are expected over the next four years. Depot infrastructure was also renovated, and three new centres were built at Hams Hall, Rugby and Waltham Point.
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By GlobalDataSainsbury also announced plans three weeks ago to outsource its IT operations to Andersen Consulting, which will provide a new platform for the computer systems within three years and result in nearly 800 staff members of the supermarket chain switching employers. Using the GlobalNetXchange and other internal initiatives also encouraged a streamlining of processes that enabled greater efficiencies and cost savings.
Sainsbury has also shown plans to increase capital expenditure to a yearly figure of £200m for the next three years, an outlay that will be supported by robust operating cash flows, sales, leaseback and outsourcing alternatives, and a strong balance sheet.
Reinvigorating Sainsbury
In terms of reinvigorating the store, Sainsbury’s CEO, Sir Peter Davis commented that he was “quite clear about the scale of change needed in our core supermarkets business. [But] I am confident that we are on track to achieve our goal of being first for food in the UK.”
As well as pointing towards a Code of Practise designed to improve relationships with suppliers, Davis expounded the trading strategy: “To offer extraordinary quality at ordinary prices.” He announced that customer research proved that “quality is more important to them than price alone” and added that “we aim to remain extremely competitive on price.”
Davies also pointed out the significant investment in product development, “the quality of our food innovation and our food integrity.” The 350-strong “Taste the Difference” range will be launched next month, and stores will soon see increasing space for fresh and chilled products.
The company’s new e-commerce site “Sainsbury’s to You” is being developed and officials believe that it will achieve 60% coverage of the UK by next April, serviced by picking in 33 stores and from two new centres in West London. The first interactive food-shopping channel in the UK is also about to be launched through a strategic partnership with Carlton Communications.
No current trading figures were provided by the supermarket statement, but an analyst for ABN AMRO did say that the “statement is particularly positive because it gives quite a considerable amount of detail on the improvements [within] the company.” The official Q2 trading figures are due to be released on 22 November.
