Our business is growing because we have responded quickly and effectively to a rapidly
changing environment. Total sales for the year were up 5.7 per cent and like-for-like
sales excluding fuel were up
4.5 per cent. In addition we have continued to drive
cost efficiencies offsetting over 75 per cent of cost inflation and delivered further
profit growth.
Fixing fundamental parts of our operation through our ‘Making Sainsbury’s Great Again’ (“MSGA”) recovery programme has placed the business in a strong position. Although consumer confidence in the UK has declined during the year, our performance improved as a result of the strength of the Sainsbury’s brand and actions we have taken to adjust our offer to changing customer trends.
Sainsbury’s is a long-established company and celebrates its 140th anniversary this month. It has a heritage of offering customers great products at fair prices, through a variety of economic trading periods, and we have developed our offer to compete and grow in what has been a very challenging period for the UK retail industry.
Our universal customer appeal and continued investment in price and quality have been fundamental to our growth, catering for a range of changing customer needs and trends. Over the past 12 months consumers have become increasingly ‘savvy’ and have responded to rises in the cost of living by making significant changes to the mix of products they buy. In an effort to manage their household budgets more tightly, people are eating out less and cooking at home more. They are shopping around to get the best prices and deals but also want the best quality they can afford and to stay true to their values.
Sainsbury’s ‘good, better, best’ product range hierarchy has provided customers with the flexibility to change what they buy, rather than where they shop. Customer transactions have grown to over 18 million a week and basket size has also increased. Further improvements in service levels and product availability have been achieved and as customers increasingly compare the value offered in different supermarkets they are realising they can get both great products and fair prices at Sainsbury’s. Investment in pricing, improved promotions and a range of marketing activities have all combined to significantly improve our customers’ price perception.
We have continued to invest in our five areas of focus (outlined on this page), each of which has delivered over the past year and provides significant opportunities for future growth. The areas are to build and stretch our lead in food, accelerate the development of non-food ranges and services, extend the reach of our brand via our online and convenience offers, to grow our store estate and actively manage our property assets.
Our progress in the past four years has made the Company a stronger business with a wide customer base and universal appeal. We are performing well and have significant opportunities for further growth. We expect the current economic environment to remain challenging but our focus on doing a great job for customers means we are well positioned to continue our good progress.
Operating review
Sainsbury’s performance over the past 12 months has been underpinned by the enormous changes made during the MSGA recovery programme. Sainsbury’s is now a stronger business having delivered four consecutive years of sales growth and we continue to build on this strong foundation. Our focus on listening to customers and constantly working to improve their shopping experience has enabled us to successfully anticipate and respond to changing economic conditions during the past 12 months. The brand has been proven to be both resilient and flexible and we are competing effectively and growing sales in a particularly challenging economic environment.
There has been a considerable change in customer shopping patterns over the year as consumers have increasingly felt the need to manage household budgets more carefully. The grocery sector tends to be more resilient in such conditions as food purchasing is not as discretionary as many other product sectors, but Sainsbury’s has still had to adapt to changes in how and where consumers want to spend their money. Our performance in the current economic climate shows we are in touch with our customers and capable of responding effectively to their changing needs and wants.
This year Sainsbury’s is celebrating its 140th anniversary having set up shop in Drury Lane, London in 1869. The Company was founded on the principle of helping people in poorer parts of London eat a better diet, despite budget constraints, and over the years it has remained true to its value of offering great products at fair prices with a strong ethical approach to business. Getting value for money is even more important to consumers when budgets are stretched. Basket size has increased as Sainsbury’s ‘good, better, best’ product range hierarchy, the basis of our universal appeal, caters for the full range of customer needs and budgets. As requirements have changed, customers have been able to adapt their shopping within Sainsbury’s stores.
Over 18 million customers now shop at Sainsbury’s every week. Even though they are looking to economise, ethical and environmental concerns are growing in importance for customers. Sainsbury’s provides a compelling offer and we take a leading stance on a range of such issues on behalf of our customers while still ensuring products are competitively priced. This has been the essence of Sainsbury’s brand for 140 years and has relevance in all economic environments. Today our marketing campaigns are based around three themes. ‘Shop and Save’ provides customers with competitive pricing and a range of promotions. ‘Switch and Save’ highlights the quality and value of Sainsbury’s own-brand products at significantly lower prices than equivalent leading brands and ‘Cook and Save’ helps customers make their household budgets stretch further with initiatives such as ‘Feed your Family for a Fiver’ and ‘Love your Leftovers’.
Customers increasingly compare and contrast the offer available in different supermarkets, and are recognising the value they get at Sainsbury’s. While further improvements to customer service and product availability have been achieved, of all the measurements tracked on a regular basis over the past 12 months, our price perception metric has seen the biggest improvement.
The entry level ‘basics’ range was extended during the year and now comprises over 650 products. A wider ‘basics’ products range was also made available in a greater number of stores across our estate. ‘Basics’ provides a compelling part of Sainsbury’s own-brand range and is a clear way to save money when considerations such as size, shape or product appearance are not a primary concern. New products continue to be added to the range. Around two-thirds of the items are under £1 and over 200 are under 50 pence. Around 70 per cent of our customers now buy into the range helping to make ‘basics’ the Company’s fastest growing sub-brand over the year. In the final quarter of the year sales were up over 60 per cent year-on-year.
Strong marketing campaigns have played a key role in showing customers that Sainsbury’s understands the challenges they are facing and has solutions to help them. In October 2008 the Institute of Grocery Distribution presented us with its ‘Award for Consumer Understanding’ for delivering innovative and appropriate solutions for customers. In particular it acknowledged our ‘Feed Your Family for a Fiver’ campaign, launched in March 2008, which recognised the increasing trend towards cooking more from scratch and eating at home.
The campaign has been incredibly successful and customers also believe they have a better, healthier diet when cooking meals at home themselves. The campaign helps customers save money with simple meal ideas for a family of four, for £5 or under.
Justin King
Chief Executive