Sainsbury’s was accused of declaring a “war on brands” at its trade briefing with IGD this week, where it unveiled its latest strategy for fighting back against the discounters. According to some dismayed suppliers, the retailer hinted at plans to “significantly” cut branded SKUs, and force through cost price reductions in a move akin to Tesco’s Project Reset. But Sainsbury’s has since insisted it is actually looking to “create a home for brands” and to work collaboratively with them to make them more “distinctive and rewarding for customers”. So what exactly did the Sainsbury’s briefing reveal about its new direction? And what does it mean for brands?
In presentations that left some suppliers reeling last week, Sainsbury’s food commercial director Paul Mills-Hicks and packaged director James Bailey made it clear the retailer is fed up with losing market share to the discounters, blaming this on two factors: range complexity and price.
Range complexity - with a proliferation of pack sizes and variants on shelves - is the legacy of a “broken business model” according to Mills-Hicks - and while there has been some rationalisation, notably in chilled, in recent years, Sainsbury’s set out a drastic new strategy based on “differentiation”.
At the centre of this strategy will be a “reassessment” of the emotional and functional quality of all 34,000 Sainsbury’s SKUs. Grocery products will be divided into five categories: commodity, which are available everywhere for the same price; equity, which are not currently in the discounters and still have market value; exclusive, such as those launched first in Sainsbury’s; owned, which are co-created with Sainsbury’s; and Sainsbury’s own-brand products.
Mills-Hicks and Bailey didn’t confirm exactly what changes Sainsbury’s would be making to its SKU count based on these new categorisations, but they did say they wanted to see an overall range reduction, and hinted at “substantial” changes to the retailer’s product lineup.
The key message, according to suppliers at the briefing, was that Sainsbury’s would seek out “distinctive” NPD and brands, while trimming down ranges from “commodity brands”, reducing the number of different variants and pack sizes on shelves.
Sainsbury’s also wants to see lower cost prices - particularly from commodity brands also on sale in the discounters. Here Mills-Hicks and Bailey were more explicit on the numbers, according to suppliers, citing an ambition to see a 20% reduction in the cost of goods sold.
For some food and drink suppliers, Sainsbury’s plans to cut SKUs and force price cuts are all too familiar.
“They are reducing their range and putting pressure on the brands that remain on shelf to reduce cost prices,” said one source. “These range resets are just another way of negotiating and putting the squeeze on the likes of Unilever and P&G”.
For others, however, Sainsbury’s new focus on “differentiation” could arguably open up new opportunities for challenger brands. “We’re having an ongoing conversation with them, but actually think it could be good for the category and our brand,” says a director at one fast-growing brand.
And while some suppliers came away from the briefing with the impression Sainsbury’s would be asking for a 20% cost price reduction from brands that wanted to stay on shelf, others said there was no such demand - with the 20% reduction laid out as an ambition for what could be achieved through better efficiencies across the supply chain resulting from simplifying ranges.
“They were basically saying ‘you will save money in your factories by not having all these different SKUs to produce and we will save money by not having so many different lines to replenish, and between us we will make a 20% saving, which means we can reduce the price to consumers,’” says James Millward, EuroLait MD.
What everyone can agree on is that Sainsbury’s strategy is likely to deal a further blow to the UK’s biggest branded players, who have long presided over the British retail market, but are beginning to lose their grip. “Brands that have an emotional attachment with the consumer or a genuine point of difference will do well, but those who have been more interested in buying shelf space to squeeze out competitors than they have been on appealing to consumers are going to lose out,” says Millward.