Sainsburys Accenturecontract by bmm18288


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									Making Sainsbury’s
Great Again
19 October 2004
Philip Hampton
Justin King
Chief Executive
Making Sainsbury’s
great again

What we have found
New and experienced management team
Restoring universal appeal
Fixing the basics
Sales led profit recovery
What we have found
Our core strengths

 14m customer visits a week
 150,000 loyal and committed colleagues
 Heritage of quality food at fair prices
 Strong relationship with suppliers
 National, well invested store network
 Management committed to success
What we have found
Customer proposition

 Huge brand equity
 Sainsbury’s brand remains unique and
 well positioned
 Failed to execute our unique proposition
 Over complicated approach to customers
 Under investment in customer offer
 Falling basket size
 Dynamic market place
What we have found
Store portfolio

 Strong national presence - 721 stores
 461 supermarkets of which 239 are
 freehold or long leasehold
 Average size of supermarket 34,000 sq ft
 157 stores over 40,000 sq ft
 Trade well up to 55,000 sq ft
 255 stores refurbished or extended in
 last 5 years
 Under investment in 131 stores
 Over complicated approach to formats
What we have found
Retailing basics

 Business transformation
  - automated depots not fully operational
  - IT systems not achieving targets
 Store operations too complex
  - 50% of availability issue is in store
  - investment not customer focused
 Resulted in
  - poor execution of customer offer
  - unacceptable availability
What we have found
Organisation and people

 150,000 loyal and committed colleagues
 Lack of focus on customers and stores
 Bureaucratic process driven culture
 Low morale amongst colleagues
 Complex structure with unclear accountabilities
What we have found
Unsustainable business model

 Margin driven
 Invested in infrastructure
 Low returns on capital investment
 High cost base
 Continuing decline in market share and
 sales densities
Current trading

%                                                 Q1                Q2                 H1
Sales growth including petrol
 - Total                                        2.3               4.4                3.5
 - LfL                                          1.0               1.8                1.5
 - LfL inflation / (deflation)                  0.5              (0.5)              (0.1)

Sales growth excluding petrol
 - Total                                        0.8               1.5                1.3
 - LfL                                         (0.6)             (1.1)              (0.9)
 - LfL inflation / (deflation)                  0.2              (1.1)              (0.5)

 Expected PBT for H1 between £125m and £135m

                              PBT is stated before exceptional items , amortisation of goodwill and
                              costs or charges that may arise from the completion of the business
                              review, which will be subject to our normal audit review
Making Sainsbury’s
Great Again
New management team

Outstanding retail experience and
track record of delivery
Operating Board
 - Lawrence Christensen (Supply Chain)
 - Jim McCarthy (Convenience)
 - Gwyn Burr (Customer Service)
 - Mike Coupe (Trading)
Clear responsibility for results
Finance succession underway
New and existing talent
Restoring universal appeal
Unique and competitive offer

 Mainstream grocery shopping
 Outstanding food
 Restore reputation for quality and innovation
 Premium and Health ranges best available
 Inclusive for all our customers
 Clear category hierarchy: Good, Better, Best
Restoring universal appeal
Customer offer

 Great food at fair prices
 Supported by strong promotions programme
 Nectar – improve effectiveness
 Have scale to succeed
 Straightforward approach to formats
 By end of 2007/08
  - grow sales by £2.5 billion
  - invest at least £400m in improving customer
 Annual investment of 100-150 bp from buying
                     (1) Excludes Petrol   and Sainsbury’s Bank
Restoring universal appeal
Relevant general merchandise

 Complementary, not destination, to food shop
 Three areas of focus
  - core general merchandise
  - clothing
  - home
 Matched to store size
 By end of 2007/08 grow sales by £700m
Restoring universal appeal
Convenience stores

 Convenience management team is best in UK
 Focused on growth in neighbourhood model
 Good progress on conversions
 Existing estate reviewed - 13 stores to close
 Reviewing Shell store portfolio
 By end of 2007/08 grow sales by £400m
Restoring universal appeal
Sainsbury’s to You

 Important service to offer to customers
 Focus is on improving service
 Based on store picking model
 Expansion suspended until availability
 issues resolved
 Investment in improved service and systems
 Will not contribute to profit for next two years
Restoring universal appeal
Sainsbury’s Bank

 Quality management team
 Low customer acquisition cost
 Innovative products and services
 Strong growth in customer numbers
  - 1m credit card customers
  - over 2m customer accounts
 Treble profits to £90m by end of 2007/08
Fixing the basics
Fixing the basics
Customer offer

 Making range relevant for customers
  - range churn reduced by 75%
  - more effective promotions
 Simplified range hierarchy with core offer in
 all stores
 Investment in price and quality
Fixing the basics
Supply Chain

 New management team in place
 Completed review of automated depots
 Supplier compliance
 Additional manual support
 Protecting Christmas
 Asset write-off £120m
Fixing the basics
IT systems

 Systems not delivering business benefits
 Slow down roll-out of new systems development
 Renegotiating Accenture outsourcing contract
 Simplify systems to increase effectiveness
 Rebuild internal capability
 Asset write-off £140m
Fixing the basics
Store operations

 Recruit an additional 3,000 colleagues by
 January 2005
 Focus on improving service
 All colleagues now bonused on availability
 and service
 Optimise working hours to support customers
 and supply chain
 Refurbish 131 stores
Fixing the basics

 Driving volume to protect availability
 Substantially increase forecasting effectiveness
 Clearance catch up largely complete
 Simplifying range and promotions
 New stock management procedures
 Stock write-off £80m
Fixing the basics
Organisation and people

 Focus on supporting store colleagues to
 serve the customer
 Colleague initiatives
  - new bonus schemes
  - suggestion and recognition schemes
 Streamlined effective central operations
 No move from Holborn
 Colleague related provision of £90m
Making Sainsbury’s
great again

Improve availability
Ensure store friendly deliveries from supply chain
Renegotiate Accenture contract and reduce spend
Accelerate investment in customer offer
Reduce central costs
Simplify in store and central support processes
Sales led
profit recovery
Sales led profit recovery
Driving sales

 Grow sales £2.5 billion by end of 2007/08
  - grocery - £1.4 billion
  - general merchandise - £700m
  - convenience - £400m
 Market matching sales growth by
 end of 2005/06

                   (1) Excludes Petrol   and Sainsbury’s Bank
Sales led profit recovery
Operating efficiencies
 Deliver at least £400m operating cost savings
 by 2007/08
           Supply chain                  50
           IT systems                    40
           Stock loss                   120
           Store operations              70
           Marketing                     40
           Central                       60
           Other                         20
                                       £400m (1)

 Realistic deliverable savings

                      (1) Excludes   the impact of write-offs
Business review
Exceptional items for 2004/05
                             Estimated costs £m

 Supply chain assets
  (1)                                                             120
 IT assets                                                        140
 Stock                                                             80
 Employment                                                        90
 Property                                                         100 (1)
 Other                                                             20
                                                                  550 (2)

 Profit on sale of Shaw’s                                         275 (3)

                         This includes property loss on disposal of £25m
                         Cash costs of approximately £100m
                         This is offset by an adjustment in respect of previous years
                         disposals of £20m
Sales led profit recovery
Cash flow management

Continuing cash flow improvements
Tight management of capital expenditure
 - ongoing £450m pa
 - IT systems and supply chain completion costs £200m
Dividend payments reduced by approximately £135m
Opportunities from asset and store development
 - cash proceeds of around £75m pa until 2007/08
Opportunity to trade stores at the margin
Aiming for cashflow neutral in 2005/06 and positive
Objective is to maintain investment grade credit rating

                        Including convenience acquisitions but excluding Sainsbury’s Bank
                        Before repaying the balance of the capital returns outstanding of £40m
Sales led profit recovery
 2004/05 outlook
  - further investment in customer offer
  - H2 underlying PBT not significantly different to H1
 Customer investment of £400m already begun
  - majority invested by end of 2006/07
 Annual investment of 100-150 bp from buying efficiencies
 Operational cost savings - 2005/06 - £100m
                          - 2006/07 - £150m
                          - 2007/08 - £150m
 Sales growth - market growth by end of 2005/06
 Grow sales by £2.5 billion(2) by end of 2007/08
 Operational gearing delivered strongly from H2 2006/07
                        (1) PBTis stated before exceptional items, amortisation of goodwill and
                          costs or charges that may arise from the completion of the business
                          review, which will be subject to our normal audit review
                        (2) Excluding   petrol and Sainsbury’s Bank
Making Sainsbury’s
great again

This time it will be different
Strong management team
Plans to fix basics
Customer focus driving cultural change
Investment in customer offer
Sales led recovery
Making Sainsbury’s
Great Again

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