Lloyds pharmacy in Sainsburys

Sainsbury’s has entered talks with suppliers over the future of its Lloyds Pharmacy space. This is being described by Sainsbury’s as a mere investigation, scenario research if you will, being conducted on a store-by-store basis.

This approach to commercialising the space on Sainsbury’s side is at best strategically late and haphazard, and at worst a false promise for suppliers’ cash. The appropriate use of that space should have been locked and loaded before the Lloyds announcement – maybe it was. I urge suppliers not to engage on this approach, as either way it will be futile.

On the face of it, there is a 240-store distribution opportunity. I say to suppliers: don’t be dazzled, your listing fees will be pocketed and six months later the experiment will have failed.

The offer of new distribution whilst grabbing suppliers’ money to plug a leaky P&L has been done before. Back in the Philip Clarke era, Tesco saw this as a way to stem the flow of losses. Suppliers rushed to shove in their flanker lines, invariably the same ones which didn’t previously make the cut based on consumer needs. Their low-level sales cannibalised existing sales, whilst pipeline stocks and supply chain costs spiralled upwards for the retailer.

As always with these things, the ruse is veiled in a shroud of legitimacy: the ‘food first 2.20’ initiative, giving suppliers a “key say” in its proposition. Frankly even that sounds rudderless. Sainsbury’s problem is losing market share to discounters, and the chosen route is to keep prices low. Requests for lower cost prices appear to make sense, but the result of range extensions is range proliferation, ultimately dragging down the P&L. My prediction is that this would soon be followed by range rationalisation exercises – so effectively they are widening the range so they can delete it again, later showing teeth whilst requiring further cost reductions.

Whilst food should be at the heart of Sainsbury’s strategy, more food just worsens their position. Major superstore retailers need to repurpose their space whilst ideally creating a marketable traffic driver. Asda undoubtedly wins the prize for grasping this. Arguably with its portfolio of uniquely large stores, it faced the toughest challenge. However, under the Issa brothers, along with their forecourt convenience drive, they have attempted to find the right concession partnerships to gain a sustainable yield from their excess space. Following on from B&Q and New Look, The Entertainer toys and Claire’s accessories seem to have struck the right note. Symbiotically they also attract new target food shoppers. This is a truly strategic way to address the root cause of today’s challenge.

Sainsbury’s could not easily get such a deal going before the Lloyds closures are complete in 2024, but hopefully (for its own sake) that is its plan. Which once again highlights how divisive and tactical the supplier distribution promise actually is. So, unless suppliers have an in-out innovation market test or some similar requirement, I would steer clear.