Speed might not be everything, says Sainsbury's CEO of Amazon Prime threat

Profile picture for user slauchlan By Stuart Lauchlan November 11, 2015
Summary:
Amazon Prime can deliver a limited range of groceries within an hour to a limited number of people, so is this the future? Fast isn't always going to be better, argues J Sainsbury's CEO.

tortoise and hare
Tortoise or hare?

When it comes to ordering groceries online, there are several factors at play when it comes to customers making their choice of provider - product range, quality of produce, cost and of course delivery availability and reliability.

That last factor is set to pile more pressure on the traditional supermarkets as new benchmarks for delivery are set by some non-traditional competitors, such as Amazon Prime and high street retailer Argos.

It’s early days, but the longer-term threat is obviously clear, admits Mike Coupe, CEO of UK grocery chain J Sainsbury, who says:

We talk about serving our customers whenever and wherever they want and you can see in most online markets now there's a step towards even faster deliveries. You can see that in Amazon Prime, as an example [or] the Argos announcement the other week in terms of four-hour delivery slots.

Clearly, Amazon have raised the stakes within the food market by putting in effectively a one-hour delivery time, albeit you have to pay quite a lot of money for it and you can only order 50 products. But I suspect that won't stay that way for very long.

So it's inevitable that it'll move in that direction.

But Coupe speculates that delivery speed might not turn out to be the major competitive differentiator that it might suggest it will be at this stage:

Whether or not there's a customer demand for it, we'll see over time. Because I think, particularly in food, it might be less attractive because in the end, it has to be a more planned occasion than perhaps one-hour or four-hour or same-day deliveries in non-food. But we'll see over time, but I suspect it's inevitable that it will move in that direction.

For now, it’s just another long-term consideration for the CEO with quite enough short-term problems. The firm this week turned in an 18% drop in profits on group sales down to £13.6 million for the 28 weeks to 26 September. Coupe says that firm continues to execute on its turnaround strategy while under competitive pressure from low-cost discounters such as Aldi and Lidl. This strategy, Coupe explains, comprises of:

five elements: Knowing our customers better than anyone else; investing in great products and services at fair prices; making sure that we are there for our customers wherever, whenever they want; served by colleagues who make a difference; and our values that make us different. Those are the five key planks of our strategy.

Part of this has involved pulling back on marketing promotions and making changes to the firm’s loyalty card scheme:

This is a journey we've been on over a number of years, but simplifying our pricing, reducing the amount of promotions that we run in our business. Our promotional content has dropped from around the mid 30s to now just over 30% over the last year, and we've reinvested that back into base pricing to make sure that we've got the right value proposition for our customers, as well as changing our Nectar scheme. We're giving away the same number of points, we're just doing it in a more targeted fashion.

Digital developments

In terms of online, there’s been some progress, says Coupe:

This time last year, we talked about making sure that our online business was about serving our customers, not just about chasing volume for the sake of chasing volume. We've been very much adapting that or adhering to that strategy over the last period of time.

Actually, we've seen a pretty impressive performance with orders growing by about 14%, although overall sales have grown by 7%. And that's mainly because the cost to order has fallen in the marketplace over the last period of time, not least because of the introduction of delivery paths, which has the effect of depressing the overall basket size.

But, nevertheless, a pretty robust performance. And actually, last week, we had our record week on grocery online deliveries, 250,000-odd orders.

Click and collect remains a focus, he adds:

We have click and collect now in 84 locations. We'll get to 100 by Christmas. And we'd anticipate during the course of 2016, probably towards the back end, that we'll open our first fulfillment center, and that's largely because we start to cap out in terms of capacity during the course of the next year in London particularly. So that fulfillment center is there to serve the needs of our customers in London.

Sainsbury bag
The firm also wants to present an alternative to online pure-plays:

We continue to invest space into the categories where we think there's a degree of robustness design relative to the online players. So for instance, home wares, house wares, kitchenware, are all markets where we think for the foreseeable future customers will be tending to come into large shops to buy their products.

Moving forward, there are some interesting customer-centric digital pushes underway, argues Coupe:

We talk about knowing our customers better than anyone else. We already think that we have a lot of customer knowledge and that we use that customer knowledge in a variety of ways. But actually, the next stage of the program is to have what we would call a single view of our customers where we bring together all of our data sources, not just our Nectar database. And that will enable us to anticipate and fulfill our customers' needs on a more personalized basis. The first stage of [that] gets implemented in the early part of next year. We think that will step us on again in the way that we personalize our interactions with our customers.

We also have a program called Trolley Talk where real customers give us real time feedback. That means that we can constantly iterate our business on a store-by-store basis to do a better and better job for our customers. And we've also opened our Digital Lab, where we're now much, much more fleet of foot in our digital technology and the ability to land things in the digital world more quickly. And that's manifested itself in a lot of development, for instance, of our online proposition.

My take

Coupe makes an interesting point about the Amazon and Argos speedy delivery windows. Having had an appalling experience with Argos of late, I’ve not dabbled in that direction again and am geographically out of reach of the Amazon Prime offering for now. Clearly they are however setting an agent here and we’ll see other delivery-centric providers having to follow suit.

Meanwhile that turnaround strategy is taking time to kick in with any seriously demonstrable results.