In this section
Our Sustainability Plan
Annual Report 2016
We have developed our multi-channel credentials over a number of years and, as well as our core supermarket offer, we now have convenience and online businesses of scale. Ensuring the size and format of our estate meets our customers’ varied shopping needs is a fundamental part of our strategy for growth and we will continue to invest strategically so that we can serve our customers whenever, wherever and however they want.
Our strategic review highlighted the relative long-term strength in our overall store estate, giving us a structural advantage despite the declines in supermarket grocery volumes we expect to see over the coming years.
Around a quarter of our stores will have some under-utilised space over the next five years – around six per cent of our total space. We will use half of this to expand our successful clothing and general merchandise offer, making more of the range available to more customers. With only one in five of our supermarkets selling the full non-food offer, there are significant opportunities for growth. The remaining three per cent of space will be used for carefully selected concession partners, offering complementary goods and services to give our customers more choice and convenience. For example, Argos digital stores will open in ten of our supermarkets this year and we are working with Timpsons, an existing concession partner, to bring their products and services to more of our supermarkets. GP and dental surgeries have also been popular.
During this financial year we opened eight supermarkets (of which two were replacement stores), extended five, refurbished 13, and closed one. As part of our review, we announced a reduction in our store opening programme. We will add only around 450,000 square feet of new space in each of the next two financial years, predominantly focused on convenience stores. As a result of the review of our supermarket estate, we have taken an impairment charge against some of our trading stores and withdrawn from a number of schemes in our property pipeline that are unlikely to achieve an appropriate return on capital. This resulted in a total impairment and onerous contract charge of £628 million which was recognised in the first half of the financial year.
Despite a £0.9 billion decline in our property valuation, we aim to maximise the value of our property assets by working with joint venture partners to deliver new leisure, residential and commercial opportunities whilst adding trading space to our estate. We are delivering over 1,500 new homes across London as well as providing greater shopping choice to our customers and generating new local jobs. Our £500 million project with Barratt London at Nine Elms will complement the new tube station development and will open in 2016/17. It will deliver 737 new homes, a new Sainsbury’s store and 27,000 square feet of local shops, restaurants and office space. We have also developed plans for a replacement store at Whitechapel Square in Tower Hamlets alongside 600 new homes and improved public space surrounding Whitechapel Station. Mixed use development schemes are expected to deliver property profits of around £200 million in the next two years.
We are also actively exploring different supermarket formats; we see great potential in tailoring formats and product ranges to best meet customers’ needs and these will form a blueprint for future investment.
Convenience store network - The trend towards frequent, local top-up shopping continues and our convenience store network is showing strong growth. We aim to open stores at a rate of one to two per week while taking a disciplined approach to new space. This year we opened 98 convenience stores during the year, reaching a total of 707 stores. The business now generates sales of over £2.1 billion and delivered over 16 per cent growth during the year with over seven million customer transactions each week. We took over £8 million on Christmas Eve - our biggest ever day for convenience sales and we were named Convenience Retailer of the Year for the fifth consecutive year at the Retail Industry Awards.
Our strategy of adapting our product range to serve the needs of the local community has started well. We will be trialling different convenience formats to cater for varying shopping missions such as ‘food to go’ and both smaller and larger format convenience stores. This will extend our understanding of customer shopping behaviour and open up the range of suitable locations for our convenience stores in the future. With fewer than one person in ten living within a 15 minute walk of a Sainsbury’s Local, there is significant opportunity for growth.
Developing groceries online - Customers are looking to shop seamlessly across our channels, using laptops, mobile phones and tablets, and we are developing the technology to support this. We are also making online shopping more convenient, with a Click & Collect service for groceries being rolled out nationwide. We have also invested in the pricing and availability of delivery slots which has driven up order numbers and customer loyalty.
We are focused on profitable growth opportunities and we have invested in the successful upgrade of our online platform to enhance the customer shopping experience and improve availability. After the closure of the general merchandise website during the year, general merchandise is now incorporated on our groceries online site to give customers a convenient ‘one click’ option to include more everyday items in their online shop. This investment means that customers get access to a similar range of products online as they would in store.
We will continue to boost the infrastructure that supports online as a growth channel. In anticipation of demand in London, we are on track to open our first ‘dark store’ for online orders in Bromley-by-Bow in 2016.
Although the rate of growth of our online grocery business has slowed, we achieved over seven per cent growth during the year and on average we now deliver nearly 215,000 orders per week, up 13 per cent. We had our biggest online Christmas ever this year, and in the three days to 23 December 2014, our online team delivered more than 110,000 orders.
Netto UK trial - Our joint venture trial to bring Netto back to the UK continues and we now have five stores open. Our objective remains to open 15 stores by the end of the 2015/16 financial year. If successful, it will give us access to, and greater understanding of, the discount grocery sector and offer us exposure to an attractive growth channel.
Our values guide us in everything we do - from key decisions to day-today activities.
Our Sustainability Plan shows our journey addressing the challenges and opportunities not only relevant to our business but also to the world.
© J Sainsbury plc 2016