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LONDON (Alliance News) - J Sainsbury PLC Wednesday said it is mulling new concession partnerships and new store formats, as it tries to differentiate itself from its competitors to gain an upper hand in a sector that's being hit hard by intense competition and falling prices.
Sainsbury's has just completed a strategic review, and said it will be cutting costs and capital expenditure so that it can invest more in pricing, having swung to a pretax loss in the first half of the year amid falling revenue and sales. It expects the trend to continue over the next few years.
All the big three UK-listed supermarkets are suffering from the same issues, as customers head to discounters Aldi and Lidl as well as premium retailers Waitrose and Marks and Spencer Group PLC rather than doing all their shopping in one of the giant grocers as in recent years.
The UK's third-largest supermarket chain by market share, said it will do "whatever it needs to compete toe-to-toe" with its rivals, including investing a further GBP150 million in pricing, on top of what it is investing already. It said half of that pricing investment will fall in the second half of the current financial year, and the rest in the first half of the next financial year.
"No matter what our competitors do, we will always compete on price," Chief Financial Officer John Rogers told journalists Wednesday.
Sainsbury's said it will be cutting prices on "commodities" like toilet roll, everyday "essential" items like bread, and look to increase its own-brand market share of products like nappies. It said it's not just investing in pricing, as it will "improve the quality" of 3,000 own-brand products, including specialty products like meat.
"In terms of targeted price investments, generally speaking we are talking about commodities and categories where we under-trade," said Chief Executive Mike Coupe.
Sainsbury's said it will also pilot new store formats, including a small 75 square foot convenience store, and a roll out larger sized convenience stores of over 3,000 square feet. Its Sainsbury's Local stores are currently typically around 3,000 square feet.
"The real attraction is that if we can make that size store format work, that unlocks a whole bunch or property opportunities... If we are able to operate at a much smaller footprint, there is a lot of space out there at that footprint between 750 to 1,000 square feet," said Rogers, adding "That would be a big opportunity to grow, if we can make that work."
It said the offering in the smaller stores would be very "fresh food orientated" and focused on customers "emergency need requirements".
It's is not the first time that Sainsbury's has trialled a new store format, having opened its first dedicated store for food-on-the-go back in 2011 on Fleet Street in London, aimed at lawyers, bankers and journalists in the area. However, it didn't take the format any further.
"We will be developing new concept pilots for our different-sized supermarkets. We will trial these over the course of the next year, aiming to roll out the right product and service offer to our existing estate over the next few years," the company said.
Management told journalists that a quarter of its larger stores have more space than they need, but each store only has a relatively small area of around 10,000 square feet that the company feels is under-utilised. It now intends to utilise the space with a bigger and better clothing and general merchandise offering, as well as use for concessions like travel money and the roll out of mobile phone shops. Sainsbury's said that only around a third of its stores currently have a "meaningful" non-food offering.
"We don't anticipate buying a load of coffee shops and restaurants to fill space," said Coupe.
Sainsbury's big rival Tesco PLC has filled out space in some of its out-of-town superstores with restaurants and coffee shops.
Sainsbury's said it will be trialling a Jessops concession, having already trialled Timpsons and Travelex concessions in some of its stores. It said it will also be rolling out its own mobile phone shops over the next few years called 'Mobile by Sainsbury's', a similar idea to what Tesco rolled out with its Tesco Mobile.
"We currently have around half a dozen mobile phone shops, selling things like SIM cards. We will be looking to roll out between 100 and 150 phone shops over the next couple of years," said Coupe.
Jessops is a digital camera and photography chain, while Timpsons does thinks like key cutting and shoe repairs. Travelex does travel money exchange.
Sainsbury's recently opened the first of its new discount Netto stores, as part of its joint venture with Danish international discount grocery retailer Dansk Supermarked in the UK. It was a move Sainsbury's announced back in June to capture a share of the growing UK discount grocery sector, and fight back against the recent success of Aldi and Lidl, the German retailers.
Earlier this week Aldi announced big expansion plans, with the aim of having 1,000 stores open by 2022, creating 35,000 new jobs in the UK. It said it will open around 54 stores this year and 60 to 65 next year.
"We are sticking with our commitment of trialling 15 stores, which we will trial before we decide whether it works or not," said Sainsbury's Coupe about Netto.
It said that it is on track with its plans to open 15 Netto stores by the end of 2015, which if successful would give it access to the growing discount grocery channel.
Prior to revealing its "strategic plans" Wednesday, Sainsbury's had been tweaking its existing offerings. Those moves included removing Tesco from its Brand Match price comparison scheme, and now only comparing with Asda, as well as halving the Nectar card reward points it will offer members of its loyalty scheme, which it said will be effective from April next year. Sainsbury's said it made those moves so it can "reinvest in price investments".
Sainsbury's said it is also investing in its online operations, and plans to roll out clothing online in 2015, as well as click and collect and even shopping passes.
"It is going to be pretty tough over the next 18 months, but we are putting building blocks in place to invest in the future," said Coupe.
Sainsbury's shares have been trading lower all day Wednesday, following its warning it expects profitability to be lower in the second half than the first half, and expects like-for-like sales to be negative for the next few years. The shares are currently down 1.7% at 264.50 pence.
By Rowena Harris-Doughty; rowenaharrisdoughty@alliancenews.com; @rharrisdoughty
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