Don’t mention the A-word, says Sainsbury’s boss as he shells out £220m in battle with Aldi

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Written By Daily Mail

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The battle families face to pay their bills has sparked an identity crisis at Britain’s major supermarkets. Budget chains Aldi and Lidl have moved upmarket. They have convinced wealthy households that quality has improved and that most of their customers are now middle class.

The question for Simon Roberts, chief executive of Sainsbury’s, is whether he can achieve a similar effect, just in reverse.

Sainsbury’s has always been seen as a high-quality grocer, but can it convince skeptical shoppers that its stores, with a reputation for being stylish and expensive, really offer good value for money today?

Roberts, 51, has been an evangelist on this point since taking the top job in 2020. He has stepped on the accelerator this month with a big “price match” promotion. He is shopping more than 550 items with German discount retailer Aldi, including more than 60 of his baby products.

Roberts seems a little obsessed with Aldi. Why does he compare Sainsbury’s to them all the time? “We compare ourselves to everyone,” he says, although the “A word” seems to come up a lot.

Courting the middle class: Simon Roberts skipped university and worked his way up from the shop floor

Courting the middle class: Simon Roberts skipped university and worked his way up from the shop floor

Over the financial year to March, Sainsbury’s will have invested £220m in cutting costs for its customers. This includes ‘nectar pricing’, which offers large reductions to cardholders, partly funded by suppliers, who make an additional contribution.

Roberts, who skipped college and rose from the shop floor, took the top job at a difficult time.

His predecessor, Mike Coupe, had attempted to push through a merger with Asda, which was thwarted by competition watchdogs. The failure of that deal left Sainsbury’s forging a future in the face of fierce competition from Aldi, Lidl and Tesco.

Then came Covid, followed by supply chain bottlenecks, runaway energy prices and a cost of living crisis with rampant food inflation.

Roberts’ big idea was to get back to basics with a strategy he calls “Food First.” This means any profits (from any part of the Sainsbury’s empire, including Argos, petrol stations, Tu Clothing and Habitat) are reinvested into the food business.

An update on the next phase of the strategy will be presented on February 7, but before that there have been changes to the operational board. And last week, Roberts revealed that Sainsbury’s Bank was up for sale after 27 years.

He declines to delve into the looming strategic question and whether other non-food businesses are being reviewed, but says: ‘We have really started to turn around the profitability of our business.

‘This year we will have results of between £670 and £700 million. Three years ago it was below £600m. Before Covid, it was £586 million.

‘We have saved £1.3bn in costs. We had to make some difficult decisions. We decided not to do counters. [for cheese, fish and delicatessen] In addition, we decided to bring our independent Argos stores to supermarkets, reduced the number of offices and consolidated them.

‘Anything that didn’t have to do with serving customers better, we pursued. “It was a case of saving to invest.”

Since the launch of the Food First strategy, a total of £780 million has been allocated to price reductions.

The chain is also spending £200 million on a 9 per cent pay rise for 120,000 hourly employees. Your rate will increase to £13.15 per hour in London and £12 per hour elsewhere.

Roberts said: ‘By investing in keeping food prices low and investing in our staff, we are providing a better service, which means better returns for shareholders.

‘It is a virtuous circle and we are going to accelerate. This is a great time for us to really move forward.

‘Three years ago we recognized a fundamental issue. Customers wanted to shop at Sainsbury’s, but we were too expensive. The Food First strategy has been to address this problem. Until you get the value right, nothing else works.’

To get the message across, Sainsbury’s has launched a new advertising campaign. It stars Kevin McCloud, host of Channel 4’s Grand Designs, known for his lavish construction projects where spending spirals out of control. McCloud makes a cameo on the box saying in disbelief, “We came in under budget.”

I meet Roberts in one of several kitchens at the company’s headquarters in Holborn, central London, where new recipes are devised and tested.

Claire Hughes, director of product development and innovation, explains that Sainsbury’s introduces up to 1,400 new products each year. Salted caramel, she says, is a perennial favorite along with sticky caramel flavors, including a rum liqueur. She and her team took a trip to the US and came back inspired by hickory-smoked American barbecue flavors.

Roberts shows slides showing how the company overtook Tesco, Morrisons and Asda in the run-up to Christmas. Food inflation, he says, “was a really big challenge last year.” It has fallen sharply from a high of 19.2 percent in March, but was still 8 percent last month. He rejects the suggestion that there was an element of “greed” (raising prices under the guise of inflation to increase profits).

Roberts insists Sainsbury’s customers never saw inflation in their weekly shop as high as official figures suggest because they were switching to cheaper options and reducing food waste.

Your approach may work for customers, but what about investors? Shares are up 17 percent over the past 12 months. However, in the last five years they have followed a roller coaster trajectory and are barely higher than in 2019.

Topping the investor register is Qatar Investment Authority with a 14 percent stake, followed by Czech tycoon Daniel Kretinsky’s Vesa Equity Investment with just under 10 percent.

I suggest it’s all very well talking about lower prices in stores and higher wages for staff, but don’t shareholders like these want a bigger slice of the pie?

‘Looking at dividends for shareholders…

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