Online growth proving vital to Sainsbury’s Food First strategy after robust performance, says GlobalData

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Following today’s release of Sainsbury’s figures for FY2020/21; Thomas Brereton, senior retail analyst at GlobalData, a leading data and analytics company, offers his view: “Sainsbury’s pleasing full-year results display the resilience of the grocer throughout the COVID-19 pandemic. Total retail sales (excl. fuel) rose 7.3% to £28.8bn, supported by not only a strong grocery performance (sales +7.8%), but also within Argos (sales +10.9%), with online more than offsetting losses from closures of stores throughout the period. And while underlying pre-tax retail operating profit did fall 22.2% to £730m – with stronger sales failing to cover the £485m bill of direct COVID-19 costs – this should not detract from the fact that Sainsbury’s has adapted to shifting consumer demands with greater ferocity than many competitors.

“Sainsbury’s ability to quickly expand its online operations is at the core of this favourable performance; as a result, online sales now account for 42% of total retail sales. Sainsbury’s should be lauded for embracing the dynamic shift in grocery channels, with groceries online growing at 119.6% to become a £3.6bn operation, and has displayed proficiency in growing both in-house operations (traditional grocery home delivery and Sainsbury’s Chop Chop) as well as expansion of partnerships with Deliveroo and Uber Eats (now reaching over 200 stores). But the groundwork for wider online transformation started with Argos several years ago, and the non-food specialist’s already mature online proposition was excellently placed to absorb spend from consumers forced online. For Argos (where 90% of sales started online this year), and increasingly for the wider J Sainsbury group, online is no longer an additional extra.

“For the remainder of 2021, there are clear signs that the end of COVID-19 restrictions will not mean smooth sailing for Sainsbury’s. The Food First strategy has already resulted in restructuring at the expense of 500 office roles, and with growing speculation that Sainsbury’s is an M&A target, further modifications seem inevitable over the next 12 months. But Sainsbury’s should be careful not to be too heavy handed with consumer-facing changes – particularly in the case of reducing resources and space dedicated to non-food. Sainsbury’s should be looking to embrace its cross-sector proposition, not dismantle it. One possible way to improve is to revamp its Nectar offering; while this does resonate with consumers, it fails to offer the same perks as competitor loyalty schemes – particularly subscription ones – do. Sainsbury’s should consider offering a subscription-based service within Nectar that offers both food & non-food discounts – something very few retailers currently provide and could certainly be a strong USP in the minds of shoppers.”