Tesco walked a public relations tightrope last week, announcing huge and indeed better-than-expected profits as a consumer-facing business in the midst of a renewed cost-of-living crisis. And while some certainly accused the supermarket of “cashing in”, on balance it pulled it off, showing essentially how the £3.1bn profit resulted from huge cost savings from job cuts, and investment in AI, automation and personalisation being fed into price cuts, ultimately leading to significant sales growth from contented customers.
Still, though analysts disagree, Sainsbury’s 1.1% profits decline in its annual results is arguably a better look. Whether when CEO Simon Roberts is ‘showing up’ personally to present to No10 the industry’s case for government support, or when touting its value credentials to customers, he could validly argue that even before the US-Iran, with continued investment in price, as well as above-inflation colleague pay increases, further cost savings of £330m had not been enough to mitigate the already significant operating cost Inflation it was shouldering.
The big question for Sainsbury’s isn’t over its management of the macro-economy, however. As Roberts says he and his team are well equipped to cope with a crisis. It’s what Sainsbury’s does next from a strategy standpoint: whether to stick or twist.
Two years in to Sainsbury’s three-year Next Level strategy, it’s broadly on track, despite the failure to offload Argos to JD.com last year. And it’s taking “determined action” to “accelerate the transformation” of the GM retailer. A dedicated Argos management team has been established. There are fresh investments in its infrastructure and technology platforms. The app has been improved and AI and automation are improving vehicle routing, stock management and customer targeting. And a new marketplace model – which is working so well for Tesco – will launch next year. There are already thousands more products being fulfilled directly by suppliers.
Argos is far from a dead duck. It’s the UK’s fourth most visited retail website and is among the UK’s largest non-food retailers. Sales volumes were up 3.7 per cent, in the latest results. But the arrival of JD.com’s Joybuy, as well as Temu and Amazon’s continuing might compounds the subdued GM picture. And ‘More Argos, more often’ still feels like a hope rather than a strategy.
Meanwhile the opportunity to revisit food-based M&A is also premature, especially with the CMA’s 10-year moratorium (to 8 July 2029) on any future Asdsa tie-up. And while other options may present themselves, the complexity of M&A systems integration these days might also make Sainsbury’s question whether it’s better just to keep calm and carry on. As strategies go it’s not going to set the world alight. But the alternative might be spontaneous combustion.
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