Sainsbury's ran out of hummus, but it's stocked up with digital
- Summary:
- Recovering from 'Hummus-gate', Sainsbury's has turned in some decent digital growth points, even if the core supermarket grocery business remains under pressure.
Yesterday though it was back to struggles of a more conventional nature on the food retail sector as the supermarket giant turned in a third straight fall in annual profits, despite a boost from its acquistion of Argos and an uptick in online business. But it was the core supermarket operations that felt the pain, leaving CEO Mike Coupe to comment:
The UK grocery industry is one of the most challenging, if not the most challenging, in the world.
That challenging nature has been well-recorded here on dignomica, with ‘legacy’ supermarkets like Tesco and Morrisons trying to up their online game to take on digital rivals, such as Ocado and most recently Amazon Fresh. Sainsbury’s is no exception and with rumours circulating that Ocado might be about to help Marks & Spencer push into the home delivery business, conditions are only likely to get tougher.
That’s not to say there aren’t bright spots for Sainsbury’s. Its online operation is now turning in £1.3 billion in annualised sales. Over the past year, online sales growth came in at 8%, while online order growth was 12%.
In the firm’s trading statement and strategy update with analysts, Coupe said that Sainsbury’s is now delivering 275,000 orders every week. That’s resulted in some necessary logistics investment, he added:
We expect that demand for our online grocery service in London will double over the next eight years and, to help meet that growing demand, we opened our first purpose-built online fulfilment centre in Bromley-by-Bow, East London. With its cutting-edge technology, it has the capacity to fulfil 25,000 customer orders each week.
We now have 151 Groceries Online Click & Collect sites and a growing number of our customers place their order online and collect their shopping at their local supermarket. To add to customer choice, we offer same day delivery from 29 stores across the UK and are trialling one-hour delivery to over 40,000 London postcodes through our Chop Chop bicycle delivery service.
The CEO also points to the firn’s Groceries Online app, launched last year, as another success story, with some 10% of orders now coming via the App. Overall mobiile use across the whole group is up 60% year-on-year.
Equally importantly, Sainsbury’s has now integrated all its digital grocery assets under one umbrella. This means that, for example, a customer can be shopping in-store and access the digital Recipe Shop, find a menu that he or she likes, then download the necessary ingredients into the app’s online shopping list.
The Argos Asset
Then there’s Argos, another major digital asset, said Coupe:
argos.co.uk is 3rd most visited ecommerce site in the UK, with one billion annual customer visits to the combined Argos digital channels. Mobile visits are now 76% of the total, up from 66% two years ago.
Following the acquiistion, Sainsbury’s has opened 59 Argos Digital stores in its supermarkets. Each of those has seen a one to two percent uplift in grocery sales as a result of the presence of the Argos element. As such, plans to open 250 such digital stores are being accelerated, with a completion target of March 2019:
There are now 59 Argos Digital stores in our supermarkets and they are performing well. Sales at stores that have been open for over a year are delivering like-for-like sales growth of between 20 to 30 per cent. There is also a clear sales uplift of between one to two per cent in Sainsbury's stores where there is an Argos Digital store.
In 2017/18 we plan to transform 60 existing Argos high street stores to a new digital format, meaning that over a third of the Argos store estate will be digital in a year's time. We also have 207 digital collection points where customers can collect their Tu clothing, eBay and DPD orders conveniently. Over 700,000 parcels have been collected to date. Argos orders can be collected at 90 of these collection points.
The final digital component of the Sainsbury’s portfolio is with its banking arm, which saw its website relaunched in January of this year. That’s now reporting 1.9 million customer visits per month, up 50% year-on-year. Behind the scenes, efforts to introduced a new, more flexible banking platform were completed in September last year.
My take
Sainsbury’s fate remains undetermined. It can be argued that both Morrisons and Tesco are in recovery mode, to varying degrees, while the online-only challenger brands remain a new threat. That said, the online and digital progress made is encouraging enougth not to write off Sainsbury’s just yet.
The way people do their weekly grocery shop has changed. These days customers are likely to do a weekly - or even a monthly - online shop for commodity items, then pick up nightly meals by popping into local convenience stores. That’s one reaon for Sainsbury’s investing more in its convenience store roll-out.