At its preliminary results on 31 May 2000, J Sainsbury plc announced that its top priority would be to focus on improving the trading performance of its core Sainsbury’s Supermarkets business. In a presentation to investment analysts today, the supermarkets’ board will give an update on the progress made to date and the way it plans to reinvigorate the business.
Sir Peter Davis, group chief executive said “I am pleased with the progress that we are making on our three year plan to restore Sainsbury’s Supermarkets. Our objective is to generate operating margins comparable with the industry leaders by the end of this investment period. At the results presentation at the end of May I said that there were three basic infrastructure investments that had to be made. The first was to make a significant update in our systems; the proposal to outsource IT and systems to Andersen Consulting are well advanced and will give us a totally new platform for our systems within 2½ years.
“The second component was to upgrade our depot infrastructure. I am delighted that we are able to announce three new centres at Rugby, Hams Hall in the Midlands and the receipt of planning consent at Waltham Point. The latter will give us a 650,000 sq ft depot on the M25 and work has already started on site.
“The third element was to upgrade the store estate. We are currently working on plans to upgrade the entire estate within the three-year programme and more detail about this will be given at our interim results presentation on 22 November.
“In trading terms, we are quite clear about our trading strategy. This is to offer extraordinary quality at ordinary prices. All our research shows that Sainsbury’s customers shop with us for quality food and drink and quality is more important to them than price alone. However, we are a mass market operator and we aim to remain extremely competitive on price. We will price in line with competition and our key lines will match those of our major competitors. We know that our customers appreciate promotions and offers and we will continue to use them appropriately.
“Over the past six months we have increased our investment significantly in new product development to upgrade the quality of our products, the quality of our food innovation and our food integrity. We are about to launch our “Taste the Difference” range of 350 products next month. Our objective is to be first for food in the U.K. market. We will continue to deliver quality food with mass market appeal which gives outstanding value for money.
“As part of this drive next year we will start increasing significantly the space available for fresh and chilled products. We will make the space available by improved display techniques making better use of more limited grocery and non-food space.
“The success of our flagship store at Cromwell Road shows what we can do when we try. I am, however, just as delighted by the success of some of our major recent extensions which show that customers value the greater emphasis on fresh foods and the revised Sainsbury branded offer.
“I would like to pay tribute to the thousands of colleagues in the business who have responded to a very challenging timetable for significant change in the business. We are also working hard to improve our relationship with suppliers. Our new Code of Practice is but one illustration of this. We are also working, through the GlobalNetXchange and other internal initiatives to generate greater efficiencies and cost savings by streamlining our processes.
“Finally, our e-commerce offer “Sainsbury’s to You” is being rolled out and we expect to achieve 60% of coverage nationwide by April 2001. This will be serviced by a combination of picking in 33 stores and two dedicated picking centres which includes the new Park Royal facility in West London. We are also about to launch the strategic partnership with Carlton, which will help us to create the first interactive TV food shopping channel in the U.K.
“We are quite clear about the scale of change needed in our core supermarkets business. This update today demonstrates the radical programme we have put in place to transform the business over the next three years so that we can achieve margins that will compare with the best in the industry and make a real difference to what we offer our customers. I am confident that we are on track to achieve our goal of being first for food in the U.K.”
Roger Matthews, group finance director said “Today’s presentation is a progress report on the supermarket business. We have no further news today about the Homebase strategic review; it is a lengthy process which is likely to take a few more weeks to complete. Current sales and profits of the Supermarkets are in line with our expectations. Q2 Trading Figures and our first half results will be presented at our interims presentation on 22 November. Our aim is to stabilise Group profits this year before e-commerce, exceptional items and tax.
“We have embarked upon a major transformation programme with the objective of delivering substantial cost efficiencies estimated to be £600 million per annum by the end of the programme and improving like for like sales growth. This will enable us to invest in the customer offer and achieve our aim of improving operating margins. Capital expenditure will increase over existing levels but by a very manageable amount estimated at, on average, a further £150-£200 million per annum for each of the next three years. This will be funded by a strong balance sheet, robust operating cash flows, together with sale and leaseback and outsourcing alternatives.”