Sainsbury’s CEO reflects on building a flexible, sustainable business model.
Twelve years ago our food online business accounted for less than 1 percent of our sales. As we stand, our grocery online business is pushing towards 8 percent of our sales. We also acquired home retail group, Argos, because of their digital capability. Well over half of that business is now online – or initiated online. As a group, in the Christmas quarter, around 20 percent of our sales were online.
A clicks-and-bricks strategy will predominate in the UK. But 20 percent of online sales could well become 30 percent in the next five years. We now live in a world where having something delivered the same day is normal. So it’s also about being able to compete as customer expectations grow.
In the UK, certain discount retailers are the biggest disruptive force today. In 10 years’ time, it’s likely to be an online retailer. But there’s probably a kid in California dreaming up a technology that will disrupt this industry, that none of us have thought of. Our job is to build a business model flexible enough to cope with whatever comes our way.
We are pretty ruthless about holding a mirror up to ourselves to make sure that the basic things that we do – like stocking our shops and staffing them with friendly people – we do consistently well. Grocery shopping is habitual – people tend to buy the same things week in, week out – so anticipating, and fulfilling, customer needs will be driven by how well we capture and apply data, and that will be driven by artificial intelligence and algorithm-based marketing.
The biggest driver of our sector is household disposable income. Until that starts to be disrupted by Donald Trump or Brexit, it doesn’t really interfere with people’s day-to-day lives. With Brexit there’s an obvious hit in our business: everything we import is now a lot more expensive.
The cumulative effect of property taxes and employment costs will have a profound effect on the UK retail industry, putting a disproportionate burden on companies like ours, which employ a lot of people and own a lot of properties. We are competing with specialist online retailers or firms that don’t employ many people that don’t necessarily have the same burden. That is a big deal.
I always start from the premise that I have no idea how consumers are going to behave. So, let’s build a business model that allows us to adapt quickly to their changing needs. Customers are shopping around more because they have more choice, there are more shops, and you’ve got six pretty strong online players. At the other end of the spectrum, the top 10 products we sell today are the same as they were 10 years ago. Chicken Tikka Masala is still the best-selling ready meal in the UK and it was 10 years ago. What people buy is not changing anywhere near as fast as where and how they’re buying it. The big story is that people are shopping more frequently and go to more outlets. The proportion of the population that shop in Sainsbury’s has actually gone up but they’re spending less when they come. That’s challenging. Yet in many aspects of their purchasing behavior, people remain creatures of habit.