Bricks before clicks still in the mindset at J Sainsbury despite digital investment
- Summary:
- J Sainsbury turns in its worst losses for over a decade. Can digital investment help turn things around or is it too late for a firm that's still focusing on offline superstores?
Back in January, grocery giant J Sainsbury flagged up a boost in its online sales as one of the few bright spots in an otherwise difficult pre-Christmas period.
Flash forward to today and the firm is still leaning on hopes of digital success as the scale of its problems become all apparent in its full year results.
The supermarket reported a pre-tax loss of £72 million for its financial year ending 14 March 2015 - the first such loss in over a decade - and a 14.7% drop in its pre-tax profits to £681 million, compared with £798 million in the previous financial year.
Again the bright spot was the firm's online offering, with orders up by 13% from the previous year, fuelled by its click-and-collect service, improvements in securing online delivery slots, and the option of online clothes shopping.
For all that, Chief Executive Mike Coupe has a remarkably resilient view of the traditional supermarket sector:
Our view on the shape of the industry hasn't changed. For the foreseeable future, the majority of customers the majority of time will be doing their shopping in large out-of-town superstores. So the mantra of the superstore being dead we think is grossly exaggerated. Our job, our challenge, is to make our superstores more attractive to our customers for the future.
For Coupe, it’s not about a choice between online and offline. He maintains that the new online investments actually increase offline footfall:
Interestingly, around 70% of the products sold through clothing online are actually Click & Collect, so they do drive traffic to the shops. I think that's one of the clues for how we might use our real estate differently and more creatively in the future.
Particularly in our high trading stores, we're already seeing that where we have put Click & Collect in, we're getting significant demand which, of course, allows the demand in the big shops to fill up again.
So it releases car parking spaces in stores which are constrained, so it does present an opportunity, particularly in London and the South East where our stores tend to trade more intensely.
Running slow
But compared to the rest of the market leaders, J Sainsbury is running behind when it comes to online groceries sales. Coupe is defiant that the firm will not chase volume for its own sake, insisting:
Our online business, our groceries online business, is all about serving our customers on a day-to-day, week-to-week basis and actually, it represents about an 11% growth in order numbers.
We're currently shipping around 0.25 million orders a week and we believe that that will continue to grow in the future. And we're doing lots of things to continually improve the underlying proposition, whether it's the functionality of the website, whether it's the number of substitutions, whether it's the underlying availability, whether it's the quality and the freshness of the products that we sell.
To that end, Click and Collect is now available in around 20 locations, but with the intention of rolling that out to 100 “over the next period of time”. Coupe also wants to extend the service beyond the larger stores:
As well as in our large out of town super stores over the next period of time, we'll also try Click & Collect on some convenience sites where we've got car parks which again opens up the online offer to more of our customers.
J Sainsbury is also investing in a digital hub in the basement of its headquarters. This will be staffed by 480 people - Sainsbury’s reckons to have hired staffers from Google, Visa, Marks & Spencer, Nike, Sky and the BBC to date - focused on improving the firm’s digital capabilities.
At the forefront of this will be the creation of single sign-on. This is urgently needed, according to Coupe:
It might sound a statement of the blindingly obvious, but at the moment if you want to interact with Sainsbury's, you have to go through about 20 different methodologies, whether that's the bank or whether it's our online business or whether it's our clothing online business.
By focusing our customer proposition through a single identity sign on, it actually gives us lots of opportunities for how we might integrate our overall proposition in the future.
So a good example is if you shop with us online, we already have your address details. If you're applying for a bank product, we can populate your application form without you having to do the hard work. There are lots of examples of where a single sign on can add value to our business and ultimately add value to our customers.
Knowing the customer
More controversially, the grocery chain has risked customer backlash by changing the terms and conditions of the its Nectar loyalty card scheme. As of April, instead of getting two points for every £1 spent at Sainsbury’s, ‘loyal’ customers now only get one.
Coupe maintains that the new approach is actually all about personalizing how customers are rewarded for their loyalty:
Clearly, in the last period of time, we've announced a change to our Nectar scheme, the way that we reward customers. And we're increasingly moving our reward scheme towards rewarding customers on a personalized basis, so actually taking the points from a single transaction onto a personalized basis and really interacting with our customers in a fundamentally different way.
This all comes down to knowing the customer, he adds:
We believe that our customer knowledge enables us to do a better and better job of serving our customers on an individual basis than perhaps they've been served in the past and we believe that's a key point of differentiation in the future.
Those customers - and an understanding of their needs - is one of the firm’s biggest assets, Coupe insists:
We know more about our customers than anyone else. We can use that knowledge to really drive many, many multiple facets of our business.
So we can use that knowledge to think about how we range our shops and how we do a better job of ranging our shops for our customers and we do a better job than our competitors at ranging our shops for our customers.
At the other end of the spectrum, we can use that customer knowledge to sell them financial services; credit cards, loans. So that basic customer knowledge gives us a tremendous source of competitive advantage for the future.
Beyond the basics, there are some interesting digital initiatives underway, such as the Trolley Talk scheme which provides real-time information on how consumers shop via a mobile scanner attached to the trolley handlebar. Coupe explains:
We have 4,000 customers on a panel who day in day out give us feedback about what's on their minds. And we can react to that and we can, therefore, flex our proposition to deliver against their needs.
But does that make up for halving the value of their Nectar points?
My take
The trouble with Coupe’s focus on the out-of-town superstore where the weekly shop takes place is that buying habits have changed.
My main monthly shop for the basics is done online from Ocado, but I’ll top that off by the necessary ‘pop in and out’ visits to the local Morrisons or Marks & Spencer. I’ll also be ready to go out of my way to visit discount grocer Aldi if I spot a particularly good deal being advertised there.
With that in mind, my one experience of using Sainsbury’s online service was not happy one, albeit some time ago now so things may have improved. While I applaud the firm’s commitment to invest more in digital, I do wonder if it’s too little, too late?