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Discussing Sainsbury’s Preliminary Results with Covid Costs of £485m
Join Andrew Grant and Darren A. Smith in the twenty-sixth episode of the Grocery Guru Discussing Sainsbury’s Preliminary Results with Covid Costs of £485m, digital sales doubling, and 1,900 innovative products to be launched.
You Can Read the Full Issa Brothers Episode Transcript Below:
Darren A. Smith:
Welcome to episode 26 of the Grocery Guru. We’re here with Andrew Grant. Andrew, how are you?
Andrew Grant:
Good morning. Very good thank you Darren.
Darren A. Smith:
Cool, and I think we’re continuing our series of looking at results. So we’ve looked at Morrisons previously, we’ve looked at Tesco. It’s now our friends at Holborn.
Andrew Grant:
Yeah, you were going to say Stamford Street and show your age, weren’t you?
Darren A. Smith:
I was.
Andrew Grant:
Yeah, no, we’re getting towards the end of results season. I suppose, you know, those Sainsbury’s results, you’ve read them.
Darren A. Smith:
I have.
Andrew Grant:
More of the same really that we saw with Tesco and Morrisons. Everybody, all the supermarkets, all the food grocers, doing incredibly well out of COVID, but at a cost.
Darren A. Smith:
That’s true. So we’re looking at the preliminary results for the 52 weeks ended 6th of March ’21. What was the biggest highlight for you, the COVID cost?
Andrew Grant:
No, I think you’re going to touch on that in a second, but for me, it’s online. We’ve talked about it in several of these episodes, but their online sales have doubled from 8% of their business to 17% of the business. Most importantly, they’re now saying that they’re profitable online sales. So what the pandemic seems to have done is got all of them over that base cost line of running trucks and having to pick stuff in stores. You’ve got a lot of fixed costs there. They didn’t have the volume before to make it profitable. All of a sudden it’s kicked their online, or their home delivery operations, into profit, which is good news for, I guess, the shareholders going forward.
Darren A. Smith:
That makes sense. So we’re saying now that one in five customers are ordering online.
Andrew Grant:
Yeah.
Darren A. Smith:
They’ve managed to make it profitable, so they’ve got over their hump, whatever that was 10%, 15%. Okay, all right. The one I do want to raise is the COVID costs, because it’s so [inaudible 00:02:03]. So these guys are saying, I’ll just read it out, “Offset by £485 million worth of direct COVID-19 costs.”
Andrew Grant:
Yeah, I mean, their profits are down 39% on the back of that.
Darren A. Smith:
Wow.
Andrew Grant:
Yeah, I mean, a huge hit, and just have a look at the amount of Perspex in store, and the amount of stickers saying, “Two meters apart,” and the number of extra security guards. I know when we were shopping during the first lockdown, Sainsbury’s were the toughest on the rules.
Darren A. Smith:
Right, okay.
Andrew Grant:
Yeah, I can remember going in with my other half and being told to stand apart from your own wife in the Sainsbury’s line, which I thought was slightly over the top at the time.
Darren A. Smith:
In our local [inaudible 00:02:51] store, which is quite small, there’s a big queue at the front of the store, but what people have realized is you queue at the front of the store, but actually you can go in the back and there’s no one there.
Andrew Grant:
Yeah. But yeah, I mean, huge extra costs. I don’t know, maybe it’s the cynical side of me, but if I was the finance director I think I’d be throwing everything at one-off COVID costs to maybe mask some under-performance elsewhere. But I didn’t say that.
Darren A. Smith:
No, and I certainly wouldn’t repeat it. So we’ve got a statutory loss for Sainsbury’s, before tax, of £261 million, statutory loss. Wow.
Andrew Grant:
Yeah, a lot of exceptionals in there. I mean, their operating profit, as I said, was hit by that COVID, so, you know, underlying, you know, they’re doing incredibly well. The other thing, actually, if anybody that follows Sainsbury’s history, or been involved in Sainsbury’s history is, a bit like all the other UK supermarkets, they’ve got a terrible history of acquisitions.
Darren A. Smith:
Yes.
Andrew Grant:
Homebase. I mean, Homebase hobbled them for years and years and they never really did anything with it. They do seem to be making a good fist of Argos.
Darren A. Smith:
Well, that’s very true, and I remember a conference I was at was with Sir Peter Davis who, ran Sainsbury’s in, probably, the late ’90s, I think it was. He stood up on stage talking about acquisitions, and he said, “I know the answer’s Egypt, but what the hell was the question?”
Andrew Grant:
Yes, they did buy a store in Egypt, didn’t they, or whatever. But no, again, I think finally, timing seemed to be perfectly working for them, you know, to take on Argos just before home deliveries go ballistic because of, A, technology, and B, obviously, COVID accelerating it. You know, great move, moving Argos into Sainsbury’s stores so that you click and collect. You know, massively extended opening hours for Argos at no real cost to them, because the supermarket’s open anyway. Really convenient for customers, and Argos, you know, a pretty good high street, well-respected brand name. So yeah, they seem to be doing lots of good things. I know you chuckled at their new ready meals range, as did I, maybe some of their choice of branding could be improved.
Darren A. Smith:
Yeah, so I’m just going to flip to that, because I think we’ve got… So we’ve got the Stamford Street ready meals. Now, I’ve got a fondness for Stamford Street, but putting that aside, I get what they’re doing. We’ve got Mary Ann’s yogurts, and we’ve got the Imperfectly Tasty range. Okay, all right, you can see what they’re doing. Tesco, obviously were first out of the box on doing this type of thing. They’re doing it, maybe it’ll work for them too.
Andrew Grant:
Yeah. It should do. All in all, Morrisons, Tesco, Sainsbury’s, you won’t really see Asda’s figures, but they’ll have done equally well. So, the pandemic has been good for the supermarkets, and they’re continuing to rock and roll. I guess one final thing, again, while we’re on the subject of Sainsbury’s, is what their ex-boss Justin King’s been up to. I don’t know if you picked it up.
Darren A. Smith:
Well, I noticed something on LinkedIn. I saw a picture of him and then it was the headline, but it went past me. I think you’ve read it. What was he doing?
Andrew Grant:
Yeah, no, he’s jumping on this. You know, we talked back in one of the episodes about 10-minute delivery windows, and I think you were quite shocked. I think you thought it was 10 minutes to place the order, no, 10 minutes to get your order. So no, Justin has invested in Snappy Shopper, which, as I read it, is sort of a middleman between a C-store and a customer. So if you’re an independent C-store, you haven’t got the clout and the investment of a Tesco or a Sainsbury’s to do your own home deliveries. But Just Eat, in the restaurant sector, you know, if you’re a small Chinese or Indian takeaway, or whichever cuisine, Just Eat, we’ll pick up the order and deliver it, and do all the fulfillment, IT, clever stuff. Exactly what Snappy Shopper does. So if you’re an independent C-store, your customers can order online through the Snappy Shopper app, and you get your delivery, and it costs either the customer or the shopper, I think, £3 commission.
Darren A. Smith:
Okay, [crosstalk 00:07:25]. If I want to order two pints of milk, some bacon, and some eggs for breakfast later this morning. Then I just do that for £3?
Andrew Grant:
Yeah, I mean, if that’s all you order, it’s going to be a high on-cost. But I guess, given that Tesco, Sainsbury’s Morrisons, Asda’s home deliveries are everywhere, what’s the need to get it from your local C-store? If I want home delivery, my first thought would be one of those big three or four. Would I think about my little local C-store? I don’t know. Obviously a lot of them have different ranges, more local produce, possibly fresher, maybe.
Darren A. Smith:
It could [crosstalk 00:08:14].
Andrew Grant:
Justin obviously thinks it’s worth investing in. He’s put quite a shed load of money into it, his own money supposedly.
Darren A. Smith:
Well, maybe if it was a specialty Polish store, Polish convenience store?
Andrew Grant:
Yeah, actually, as I say though-
Darren A. Smith:
[inaudible 00:08:31].Andrew Grant:
But there’s there’s farm shops with all their own local produce. Maybe they can take… You know, that would be of interest to people. And as you say, specialist Polish or Eastern European supermarkets, of which there are lots, now suddenly have the ability to offer home deliveries.
Darren A. Smith:
Interesting. Let me just share a couple of highlights I noticed. I’ll read out this statement, “We are changing the pace, making bold decisions.” I thought that was an odd thing to put in, you know, it was obvious. Aren’t they always moving at pace, and always trying to make bold decisions? Why tell us that in their statement?
Andrew Grant:
It’s annual-report speak, isn’t it? You’ve got to say that. You can’t say the opposite, “We’re slowing down and not doing anything.”
Darren A. Smith:
No, I just thought it was such an obvious thing to put in. Aren’t we always moving at pace? Aren’t we always trying to making bold decisions?
Andrew Grant:
Yeah, but also, every single annual report starts with, “I want to heartily thank my staff and colleagues and everybody.” It’s just what you expect in an annual report statement.
Darren A. Smith:
All right. Well, let me just highlight this one too. “Changing our ways of working and our supplier relationships will triple our levels of new product innovation to 1900 products in the year ahead.” Now, what does that mean for Sainsbury’s and the supplier that their innovation’s going through the roof?
Andrew Grant:
Well, I think that is them finally saying, “We’re going to take M&S and Waitrose on, on their top game.” I think Sainsbury’s biggest… People like Tesco and Asda, their biggest issue is leaking shoppers to Aldi and Lidl. That will affect Sainsbury’s shoppers, but I think Sainsbury’s have to look over their shoulder at Waitrose and M&S much more, maybe, than the others.
Darren A. Smith:
Yeah.
Andrew Grant:
And of course, what M&S in particular are known for is their food innovation, just phenomenal food innovation. I think Sainsbury’s are now saying, “Right, we’re going to take them on. 1900 new products a year.” Sounds like with all those sub-brands you’ve just mentioned, you know, there’s some interesting stuff there.
Darren A. Smith:
Maybe for suppliers that are watching, the door’s a bit more open for innovation than it was before?
Andrew Grant:
Possibly. I mean, Sainsbury’s have had a good record with their new supplier academy. I forget what the name of it is, the hot house for suppliers. I’ve had very good reports of that from people that we’ve dealt with. But it sounds like they’re ramping it up even more. It’ll be interesting to see.
Darren A. Smith:
All right. Last couple of highlights, “Delivered over 12 million online orders for elderly and vulnerable customers.” Fantastic, 12 million. And the other one is, “7.4 million digital Nectar users, up from 4.5 million last year.” So another 3 million digital Nectar users.
Andrew Grant:
Yeah, and again, that links in with doubling of online business. Just like Tesco with Clubcard, their ability to data mine and understand their shoppers even more, and target them with more Stamford Street kitchen food, or whatever it is. Yeah, it just shows how, as we keep banging on about here, shopper insight is the holy grail of 21st century retailing.
Darren A. Smith:
It certainly is, and these guys are getting more and more data every day, particularly [crosstalk 00:12:02].
Andrew Grant:
Absolutely.
Darren A. Smith:
All right, Andrew, before we end, your takeaway from all of this on the preliminary results for the 52 weeks ended 6th of March ’21, by Sainsbury’s. What’s your takeaway?
Andrew Grant:
Yeah, really good performance. I feel sorry for them having to lap that performance this year, as we’ve talked about, but every cloud, etc.
Darren A. Smith:
Andrew, thank you very much. We’ll see you next week. Take care.
Andrew Grant:
Bye bye.
Darren A. Smith:
Bye.
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