Accelerating the growth of complementary non-food ranges and services
Food remains at the heart of Sainsbury’s proposition but non-food ranges complement our core food offer and are now a significant business in their own right. There has been good growth in home and lifestyle and core ranges and the star performer remains Sainsbury’s TU clothing range. As household budgets tighten, there are signs that customers are increasingly appreciating the value offered by supermarket non-food product ranges and choosing them over other specialist retailers. Sainsbury’s brand values are just as relevant in non-food products as in food. Products follow the same principles of quality, value and innovation and the ‘good, better, best’ hierarchy.
The TU clothing brand, launched in 2004, is the most established part of our non-food
offer. The infrastructure supporting TU is now well developed and in-house designers
focus on quality and value while tracking the latest developments in fashion and
clothing technology. Fairtrade T-shirts are the biggest selling volume line with
over two million T-shirts sold in the last year and over
40 per cent of customers have bought a TU item over the past year, an increase of
around
20 per cent. TU was introduced into a further 20 stores during the year and
is now in 290 stores. However, less than a third of these stores carry an extensive
range showing the sales potential increased space will deliver.
Other elements of Sainsbury’s non-food range are in earlier stages of development. In April 2008, the TU brand was transferred to our standard home and lifestyle product range as ‘TU home’ launched in two stores. The full range comprises over 2,000 kitchen and home products. The majority of stores now carry varying elements of the range, which is performing well. New stores, particularly those over 50,000 sq ft, now offer customers comprehensive non-food ranges. In April 2008, Sydenham in Kent became our largest store at 87,000 sq ft and in November, the first two-floor store opened in Hayes in Middlesex where 13,000 sq ft of TU clothing is situated above TU home and lifestyle ranges.
Our non-food business is now being run by Luke Jensen, previously Sainsbury’s strategy director, who was appointed to the new role of managing director for non-food in January 2009. The non-food operation is now fully established in our Non-Food Support Centre in Coventry where around 450 colleagues provide the support and infrastructure required for this area of the business. There is significant opportunity and potential for the growth of non-food ranges as systems and support services such as information technology and logistics are developed for the individual specialist areas. New stores are providing additional sales area for the non-food products and wider ranges are being introduced as stores are extended. The importance and potential of our non-food business is demonstrated by half of our new space being allocated to non-food.
The performance of Sainsbury’s Bank continues to improve. Our 50 per cent share of post-tax profit for our joint venture financial services operation is £4 million for 2008/09 (£(3) million loss in 2007/08). The continued investment in product development and customer acquisition is focused on insurance products, savings and credit cards. The steps taken during the MSGA programme to stabilise Sainsbury’s Bank have resulted in a tight focus on cost control, tighter risk management and a concentration on commission-based products and growing savings accounts to deliver multiple income streams. This has continued to enable Sainsbury’s Bank to make good progress and maintain a strong and well capitalised balance sheet.
Reaching more customers through additional channels
Our online food home delivery service continues to grow. Ongoing improvement to the service continues to deliver efficiencies and sales increased by over 25 per cent year-on-year through both customer retention and attracting new shoppers to the service. The operation is now annualising as a £500 million business and delivers over 100,000 orders a week. The service is available to 88 per cent of UK households. Over the year an additional 22 stores started running the service taking the total number to 169 stores. We believe there is significant growth potential in our online operation and plan to increase capacity in areas of high demand.
Non-food online
As previously announced, we are planning to complement our in-store non-food offer with a service providing non-food products online. This is on schedule to launch in the first half of 2009/10 and will provide customers with the choice of a range of Sainsbury’s own-brand and branded non-food products.
Convenience stores
Convenience is a key part of our strategy and we believe there is potential to expand our presence in this market as our service and product offer is well received in convenience locations, where we complement and operate successfully alongside local individual specialist stores. Significant improvements in operating performance have been achieved through the integration with our core supermarket business during 2008 and the disposal of 57 stores and one closure during the year which did not fit our convenience operating model.
Under the leadership of Dido Harding, who joined Sainsbury’s operating board in March 2008, a review of the convenience business was undertaken during the first half of the year. In November 2008, we announced plans to significantly accelerate the growth of our convenience operation. Sixteen convenience stores opened during the year and 50 new stores are planned in 2009/10. A further 100 are planned in 2010/11 and will continue at a similar level each year on an ongoing basis. We have been testing different approaches to the convenience market in five stores during the second half of the year. These have been developed from listening to customers and centre on two distinct shopping missions which characterise the convenience market; ‘food on the move’ and a ‘local neighbourhood’ mission. These are providing insight which will be part of the accelerated expansion of the convenience operation.